PMO seeks specific details from FinMin on benefits of merging 10 PSBs

Illustration by Binay Sinha
The Prime Minister’s Office (PMO) has sought specific details from the finance ministry on the benefits of the proposed amalgamation of 10 state-owned banks, even as the lenders await necessary approvals from the government to take the process forward.

The anchor banks — Punjab National Bank (PNB), Canara Bank, Union Bank of India, and Indian Bank — which will take over six other public sector banks (PSBs), have been asked to furnish the financial projections for the next three-five years by the Department of Financial Services. In the past few days, the government has asked the banks to give their plans for raising capital through the equity and bond markets after the completion of the merger process, a senior PSB executive said, requesting anonymity.

“The PMO has asked for the banks’ plans to close branches and ATMs and the yearly savings arising out of the merger process for the next three years,” the executive said.

The banks have been told to keep handy the data on loan projections to the corporate, MSMEs, agriculture, and retail segments after the merger process, along with the sector-wise credit data for the past two years. Additionally, the banks have submitted a road map for technical and technological integration.  

“The anchor banks have been asked to justify the benefits of the amalgamation process,” said another PSB executive, who did not want to be named.

Business Standard reported last Saturday that the Union government was treading cautiously on the merger of PSBs, even though the deadline to merge the balance sheets of these lenders was over a month away i.e. April 1.

A senior government official said Prime Minister Narendra Modi wanted to see the “outcome of the amalgamation of Bank of Baroda (BoB)” before taking a final call on the merger of the 10 PSBs. The finance ministry is likely to give a presentation to the PM soon before a final decision is taken.

“The tricky part is that the immediate benefit from the amalgamation process is cost rationalisation. But since we are state-owned banks, we cannot shut branches immediately or reduce staff. So in a way we have told the government about the long-term benefits of the exercise,” one of the bank executives cited above said. 

One advantage of the merger cited by the banks to the government is that their capital base would go up, helping them provide big-ticket loans.

The latest financial results of Bank of Baroda, which took over Dena Bank and Vijaya Bank in April 1, 2019, came as a cause of concern for the government. The bank posted a net loss of Rs 1,407 crore in the third quarter, mainly because of higher provisioning. The bank’s fresh slippages rose to around Rs 10,387 crore — the amount of loans which turned from good to bad. The credit growth was flat, as compared to a projection of 10 per cent growth in the December-end quarter.

The government’s notification related to the amalgamation scheme has been delayed, sparking concern among the boards of banks about a possible delay in the merger process, which was supposed to take place by April 1, 2020 — the beginning of the next financial year. However, Sitharaman had said in a press conference that she saw no reason for a delay in issuing the notification. “You will hear on it as and when a decision is made,” the FM had said on Saturday.

On August 30 last year, Finance Minister Nirmala Sitharaman had announced the biggest PSB merger exercise. PNB, Oriental Bank of Commerce, and United Bank of India were supposed to combine to form the nation’s second-largest lender. Canara Bank was to take over Syndicate Bank; Union Bank of India is planned to be amalgamated with Andhra Bank and Corporation Bank; and Indian Bank was to be merged with Allahabad Bank.

The Union Cabinet is set to hold at least one more meeting in the upcoming week. In the case of BoB, the process of finalising the swap ratio, for the integration of market stocks, took 49 days after the government’s notification came out.

FM set to hold review meeting on Wednesday

Finance Minister Nirmala Sitharaman will hold a review meeting with chief executives of all PSBs on Wednesday, with credit to micro, small and medium enterprises (MSMEs) being at the top of the agenda. “The finance minister has desired to conduct a review of the performance of PSBs on MSMEs,” a communication, dated February 20 and issued by the finance ministry, stated.

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