Public sector banks in turmoil after mega merger: Parliament panel

Illustration: Binay Sinha
The mega merger of public sector banks (PSBs) has led to a “turmoil” as the state-owned banks do not have the necessary talent for specialised functions like risk management and new financial technologies, the Parliamentary Standing Committee on Finance said in its report.

“PSBs are also going through considerable turmoil because of the mega mergers; this will require even closer assessment of human resources to ensure that sufficient management talent is available for the PSBs as they seek to streamline and expand their operations,” according to the report of the committee, chaired by BJP MP Jayant Sinha.

From April 1, 2020, ten PSBs were amalgamated into four, taking the total number to 12.

After the merger exercise, Punjab National Bank, Oriental Bank of Commerce, and United Bank of India combined to form one lender; Canara Bank took over Syndicate Bank; while Union Bank of India amalgamated with Andhra Bank and Corporation Bank. Indian Bank subsumed Allahabad Bank.

With the new privatisation policy announced in the Budget, the government has announced that four broad sectors, including banks, will have “bare minimum” government presence with the remaining being privatised, merged or subsidiarised with other CPSEs.

The panel also said the government should fully clarify the functioning of the Banks Board Bureau (BBB), and the BBB should assist PSBs in acquiring and retaining such specialised talent.

Strengthen PSB competitiveness 

The parliamentary panel also raised concerns on the “depressed” market valuations of state banks.

“PSBs continue to have very low price-book multiples and their market valuations remain depressed. The committee notes that the PSBs do not appear to have differentiated strategies that will enable them to compete effectively,” said the report.

Apart from the mega mergers, the Department of Financial Services should also prepare a comprehensive plan on how to strengthen PSB competitiveness, the report said. Low valuations imply that banks will find it difficult to raise equity through the markets, it said.

As a result, if NPAs increase yet again due to adverse global trends, significant funding will be required from the government to keep PSBs appropriately capitalised.

On this observation, the government replied that it has adopted a measures to reform PSBs, and strengthen their competitiveness, which include industry-linked improvement in turnaround time, digital banking services, competitive pricing, customer-need driven marketing strategy and reach, prudential lending and effective loan life-cycle management.

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