Government announces mega merger of public sector banks

Finance minister Nirmala Sitharaman during a press conference announcing the merger of public sector banks, in New Delhi on Friday (Pradeep Gaur/Mint)

Finance minister Nirmala Sitharaman on Friday announced the merger of Punjab National Bank, Oriental Bank of Commerce and United Bank with business of 7.95 trillion to make India’s second-largest bank, a week after announcing a slew of measures to boost consumer and investment confidence.

The other merger will be between Canara Bank and Syndicate Bank, which will make the fourth-largest bank, with 15.2 trillion business.

Also, Union Bank will be merged with Andhra Bank and Corporation Bank to build India’s fifth-largest public sector bank with 14.59 trillion in business.

Indian Bank will be merged with Allahabad Bank to make India’s seventh-largest PSB with a business of 8.08 trillion.

Catch all the updates here: 10 public sector banks to be merged into four

Sitharaman said the earlier merger of Bank of Baroda, Vijaya Bank and Dena Bank led to enhanced customization and rationalization of operations without any retrenchment. CASA (current and savings account) growth is 6.9% in the June quarter; retail loan growth is 20.5%, while profitability is around 710 crore.

Finance Minister Nirmala Sitharaman announces 4 mega bank mergers
Finance Minister Nirmala Sitharaman announced 4 mega mergers of 10 banks. Sitharaman said that the creation of next-generation banks was imperative for India to become a $5 trillion economy in the next five years.

Sitharaman said gross NPAs of PSBs have come down to 7.9 trillion in the March quarter of the previous fiscal year, from 8.65 trillion in the preceding December quarter. Out of 18 public sector banks, 14 are in profit-earning situation.

Sitharaman last Friday said the government will front-load its 70,000-crore capital infusion into public sector banks to nudge an additional lending of 5 trillion. In FY19, the government had infused more than 1 trillion in public sector banks. The last tranche of 48,239 crore in February had allowed six lenders to exit the Reserve Bank of India’s (RBI’s) prompt corrective action (PCA) scheme. The central bank uses the PCA framework to ring-fence lenders breaching regulatory thresholds in bad loans and capital adequacy.

The government earlier announced measures to support non-banking financial companies (NBFCs) and housing finance companies (HFCs). To support HFCs, the government assured additional liquidity support of 20,000 crore by the National Housing Bank, taking the total to 30,000 crore. As part of the 1-trillion scheme, which was announced for restoring liquidity in NBFCs, the government will provide a one-time six-month partial credit guarantee to public sector banks for the first loss of up to 10% for the purchase of high-rated assets.