Published: Sat, August 31, 2019
Markets | By Otis Pena

Breaking! 27 public sector banks now become just 12

Breaking! 27 public sector banks now become just 12

The Finance Ministry made a decision to bring down the total number of public sector banks from a total of 27 to 12 rather than follow its earlier practice of repeated capital infusion in ailing financial bodies.

The government is charting out a mega merger plan for public sector banks (PSBs) and could make an announcement anytime now, as per a report by CNBC-TV18.

As part of the exercise, Punjab National Bank will absorb Oriental Bank of Commerce and United Bank, which will then become India's second-largest bank after State Bank of India (SBI) with Rs 17.95 lakh crore business size and 11,437 branches.

Indian Bank and Allahabad Bank will also merge to become the seventh largest public sector bank.

Finance Minister Nirmala Sitharaman Friday said 10 public sector banks would be merged.

The move comes just a year after the government undertook a pilot-of-sorts, merging three banks - Bank of Baroda, Vijaya Bank and Dena Bank. "You're merging commercially, economically viable, compatible entities". She said that Punjab National Bank, Oriental Bank of Commerce and United Bank will marge to acquire one unified identity. The remaining four banks are still under the RBI's Prompt Corrective Action. Indian Bank had a bad loan ratio of 7.33 percent and its capital adequacy ratio at the end of the first quarter was at 13.62 percent. "Effective date of merger will be decided by the bank's boards", he said.

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It also increased the chances Johnson could face a vote of no-confidence in parliament, potentially leading to an election. The news agency adds that under Johnson's plan, Parliament would be closed for 23 working days.

Bank unions opposed the mega merger of 10 state-run banks into four saying the move is bereft of logic and lacks any rationale.

The BSE Bankex surged by a massive 172 points today to close at 30,949 as the merger buzz pushed the stocks of PSU banks. The combined advances base of the merged bank will be Rs 6.61 lakh crore and the deposit base will stand at approximately Rs 8.6 lakh crore.

Last week, she had announced that the Rs 70,000 crore capital infusion for PSBs for the current fiscal would be front-loaded.

PSB boards will be given the mandate to rationalise board committees. After this amalgamation, only 12 public sector banks will be left in the country from the 27 earlier.

Meanwhile, the finance ministry also announced significant governance reforms for PSBs, including appointing chief risk officers at each bank at market-linked compensation to ensure that risk assessment while sanctioning loans is followed thoroughly. Out of total 18 public sector banks only 14 are in profit-earning situation at this time.

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