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

Changes to expect after FM’s announcements on PSU bank mergers

Changes to expect after FM’s announcements on PSU bank mergers

Andhra Bank and Corporation Bank will join Union Bank of India and the new entity will be the fifth largest in terms of business and fourth largest in terms of branches. "The announced capital infusion is unlikely to be sufficient for taking these banks out of PCA in immediate future".

According to Fitch, banks would require United States dollars 13-15 billion of capital by FY21 over and above the Rs 70,000 crore that government is pumping into them this year.

Apart from the mergers, Ms Sitharaman also announced a number of smaller reforms to the boards of the banks that are aimed at improving their efficiency and accountability.

Additionally, the total business of the merged entity of Canara Bank and Syndicate Bank will be Rs 15.20 lakh crore. However, at a time when the consumption is slowed down significantly, the merger will slow down lending at their entity level and also within the system.

All the anchor banks in the consolidation process will get capital support. "The employees will only benefit", he said.

Sitharaman said the creation of next-generation banks was imperative for India to become a $ 5 trillion economy in the next five years. The merger also has the potential to lead to large cost reductions due to network overlaps, Ms. Sitharaman said, adding that the similar business cultures of the two banks would also facilitate a smooth transition. In September 2018, the government had announced the appointment of MD and CEOs of 10 PSBs, including Andhra Bank, Allahabad Bank, Syndicate Bank, United Bank of India and Indian Bank. This will form India's second-largest public sector bank, after the State Bank of India, with Rs 18 lakh crore business and the second-largest branch network.

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In the case of the amalgamation of Bank of Baroda, Vijaya Bank and Dena Bank, it took nearly six months for the new entity to come into existence.

State Bank chairman Rajnish Kumar said the merger is a cohesive and a clear recognition that bigger banks have that much more ability to absorb shocks, reap economies of scale as well as the capacity to raise resources without depending unduly on the exchequer.

Commenting on the merger decision, PNB Managing Director Sunil Mehta said this is a very welcome measure taken by the government.

It is to be mentioned that in place of 27 public sector banks in 2017, now there will be 12 public sector banks after the latest round of consolidation of PSU banks. Bank of Maharashtra (BoM) in the west will continue with Rs. 2.34 lakh crore of business, along with Punjab & Sind Bank, with a business of Rs. 1.71 lakh crore.

Previously, the government has already merged State Bank of India with its affiliate banks, and Bank of Baroda with Vijaya Bank and Dena Bank.

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