Number of PSBs declines to 12 from 27 after consolidation

Canara Bank Syndicate Bank to merge to become 4th largest public sector bank

The announcement by Finance Minister Nirmala Sithraman, in second of her promised three-dose economic booster, came on a day GDP growth hit a six-year low. The move, claimed the protesting body of unions, will lead to job losses and make the workforce vulnerable. Similarly, Dena Bank, Vijaya Bank merged with Bank of Baroda which came into effect from 1 April 2019.

While he did not specify the date from when the scheme of amalgamation would become effective, Rajiv Kumar said the boards of the banks would take a decision on the scheme.

The shares of PSU banks closed subdued in trade today despite reports of the merger.

"However, given the sizeable capital infusion being announced for these 10 banks, the merger is unlikely to credit negative for merging banks", Gupta said.

In May, shortly before the Lok Sabha election results were out, Reuters had reported Punjab National Bank could merge with Oriental Bank Of Commerce, Andhra Bank and Allahabad Bank.

Additionally, the total business of the merged entity of Canara Bank and Syndicate Bank will be Rs 15.20 lakh crore.

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The third merger will be between Andhra bank, Union Bank of India (UBI) and Corporate Bank to create the fifth largest PSB with a combined business of Rs 14.59 lakh crore. The efforts taken in the last five years has significantly cut down on the non-performing loans, while the recovery of loans has also notably improved.

Terming this move as 'Building NextGen Banks, ' Nirmala Sitharaman told a press conference that from this consolidation will emerge big banks with enhanced capacity, strong national presence and global reach. Several of these banks have, over the past six years, been hurt by rising bad loans and dwindling capital, which has crippled their ability to lend faster.

The finance minister also unveiled governance reforms in public sector banks, saying their boards will be given autonomy and enabled to do succession planning.

The Narendra Modi government has reportedly prepared a major plan for merging multiple sets of PSBs and may announce it anytime soon, said a report in Business Standard quoting sources. The Bank of Baroda, whose merger with the Dena and the Vijaya Bank, was announced in the last fiscal, would get Rs 7,000 crore and the Canara Bank would be infused with Rs 6,500 crore. 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.

"Smaller state-owned banks are generally inefficient and so the idea to merge them to make a large bank would be a good one in the long run". It has allowed them to hire external chief risk officers and to provide them market-linked compensation.

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