Highlights
- Oriental Bank of Commerce and United Bank to merge with PNB to become the second largest bank in the country after State Bank of India.
- Indian Bank and Allahabad Bank to merge to create 7th largest public sector bank with Rs 8.08 lakh cr business
- Union Bank, Andhra Bank, Corporation Bank to merge to become India’s 5th largest public sector bank with Rs 14.59 lakh cr business; to become fifth largest bank
- Canara Bank to merge with Syndicate Bank to create 4th largest public sector bank with Rs 15.20 lakh cr business.
- Two national banks—Bank of India and Central Bank—to continue as they are.
- Governance reforms in public sector banks unveiled. Boards to be given autonomy
- Boards to be given flexibility to decide sitting fee of independent directors
- Non-official directors will perform role analogous to independent directors
Amlendu Bhushan Khan / New Delhi : In a major decision, Narendra Modi Government shrink the Public Sector 27 banks to only 12 banks, Finance Minister Nirmala Sitharaman on Friday announced. The Punjab National Bank, Oriental Bank of Commerce and United Bank will merge to form the country’s second largest public sector bank with a business of Rs. 17.95 lakh crore, “1.5 times the size of Punjab National Bank”. Three more such mergers were announced as the Finance Minister said the government “wants a strong financial system” to clear the path towards making India a $5-trillion economy. Government attempt to tackle the country’s alarming non-performing asset problem that has been stressing the banking sector.
Oriental Bank of Commerce and United Bank will merge with Punjab National Bank. The merger will make it the second largest PSB, with Rs 17.95 lakh crore business and 11,437 branches.
Syndicate Bank will merge with Canara Bank to create the fourth largest public sector bank with Rs 15.20 lakh cr business.
Union Bank, Andhra Bank, Corporation Bank to merge to become India’s fifth largest public sector bank with Rs 14.59 lakh crore business.
Indian Bank will merge with Allahabad Bank.
Two banks with national presence—Bank of India and Central Bank—will continue to flourish, the finance minister said.
The mergers were among various bank reforms Sitharaman announced.
There is no government interference in commercial decisions of banks now, Sitharaman said in the prelude to the announcement.
“Partial credit guarantee scheme for NBFCs have been executed. Some Rs 3,300 crore liquidity support has been given and some Rs 30,000 crore is in the pipeline,” Sitharaman told the press.
She said the central government’s aim was “big banks with the capacity to increase credit”.
The exercise, seen together with the previous two rounds of bank consolidation, will bring down the number of nationalised public sector banks to 12 from 27 in 2017. This, the government feels, will make bank balance sheet stronger with greater capacity to lend.
Last year, the government had merged Dena Bank and Vijaya Bank with Bank of Baroda, creating the third-largest bank by loans in the country.
After the mergers, the country will have 12 public sector banks, including State Bank of India and Bank of Baroda. Also, Indian Overseas Bank, Uco Bank, Bank of Maharashtra and Punjab and Sind Bank, which have strong regional focus, will continue as separate entities.
Other measures
The finance minister also unveiled governance reforms in public sector banks, saying their boards will be given autonomy and enabled to do succession planning.
Also, bank boards will be given flexibility to fix sitting fee of independent directors, she said, adding that non-official directors will perform role analogous to independent directors.
“To make management accountable to board, board committee of nationalised banks to appraise performance of general manager and above including managing director,” she said.
Post consolidation, boards will be given flexibility to introduce chief general manager level as per business needs. They will also recruit chief risk officer at market-linked compensation to attract best talent.
Sitharaman had last week unveiled the first of three planned stimulus packages that included a reduction of taxes, improvement of liquidity in the banking sector (formal and shadow), increased government spending on auto and infrastructure, and accelerated refunds of goods and services tax (GST).
This was followed by liberalisation of foreign investment rules in four sectors including coal mining, contract manufacturing, single brand retail and digital media.
About NPAs, she said profitability of public sector banks had seen an improvement and the total gross non-performing assets have come down to Rs 7.9 lakh crore at end-March 2019 from Rs 8.65 lakh crore at end-December 2018.
She also said liquidity support to NBFCs and housing finance companies has improved as the partial credit guarantee scheme has been executed. An infusion of Rs 3,300 crore has already been made and another Rs 30,000 crore is in the pipeline.
Reforms initiated in the public sector banks (PSBs) have started showing results as 14 of them posted a profit in the first quarter of the current fiscal, Sitharaman said.
The minister also said that to avoid Nirav Modi like frauds in the PSBs, the SWIFT messaging system has now been linked with the core banking system.
This is her second major press conference since she took over the Finance Ministry after May’s general elections.
