Bringing in sweeping changes to the Indian banking sector, Finance Minister Nirmala Sitharaman on Friday announced four mega banking mergers in the public sector. Ten public sector lenders have been merged to form four banking entities as a result of the mergers.
While Punjab National Bank, Oriental Bank of Commerce and United Bank will be merge to form India's second largest bank, Canara Bank will be merged with Syndicate Bank to create the fourth largest public sector bank with Rs 15.20 lakh crore worth business.
Sitharaman also announced that Union Bank, Andhra Bank and Corporation Bank will be merged to become India's fifth largest public sector bank with Rs 14.59 lakh crore business. Indian Bank and Allahabad Bank will merge to create the seventh largest public sector bank with Rs 8.08 lakh crore business.
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With the announcement and post consolidation, India will now have only 12 public sector banks as opposed to the previous 27. The merger of PNB, Oriental Bank of Commerce and United Bank will create a bank with Rs 17.95 lakh crore business and 11,437 branches.
The finance minister informed that non-official directors will perform the role analogous to independent directors in the new entities. Bank boards will be given the flexibility to fix the sitting fee of independent directors.
She added that Bank of India and Central Bank of India will continue as public sector banks.
The big banks have enhanced the capacity to increase credit, Sitharaman said in prelude to the announcement of new bank mergers. She assured that there won't be any governmental interference in commercial decisions of the banks.
In its first tenure, the Modi government had carried out two major mergers of PSU banks. In April 2017, five smaller state-owned banks and the Bharatiya Mahila Bank merged with SBI, while in April this year, Dena Bank and Vijaya Bank merged with Bank of Baroda. Following the merger, the net profit of Bank of Baroda went up 34 per cent in the first quarter of this financial year.
Decline in NPAs
Sitharaman said the profitability of public sector banks has improved and 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.
Addressing her second press conference to announce steps to boost the economy, the finance minister said the 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.
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.
