Several News agencies are reporting that Indian govt. is
planning for merger of four state run banks
The banks that could face the merger are: Bank of Baroda, IDBI
Bank Ltd, Oriental Bank of Commerce and Central Bank of India, These
four banks are under pressure with combined loss of Rs 21,646.38 crore in the
financial year 2017-18. The merger will allow the weak banks to sell assets,
reduce overheads and shut money-losing branches, the report said.
The government’s likely move is also in line with the stance
taken by the Reserve Bank of India (RBI). In April 2017, RBI governor Urjit
Patel had said that the Indian banking system could be better off if some
public sector banks were consolidated to have fewer, but healthier entities, as
it would help in dealing with the problem of stressed assets. The department of
financial services, under the finance ministry, is also simultaneously
considering a 51% stake sale in IDBI Bank to a strategic partner, for Rs
9,000-10,000 crore, the people said on condition of anonymity. “Dilution of
(government) stake in IDBI Bank could also be achieved through stake sale to
private equity investors,” said one of the two people cited above.
If the plan goes through, the merged entity will become the second
largest bank in the country after State Bank of India (SBI), with combined
assets of Rs 16.58 trillion.
Queries have been emailed to IDBI Bank, Bank of Baroda, Oriental
Bank of Commerce and Central Bank of India did not elicit any response.
"The decision is expected to facilitate the creation of
strong and competitive banks in public sector space to meet the credit needs of
a growing economy, absorb shocks and have the capacity to raise resources
without depending unduly on the state exchequer."
The mechanism will oversee the proposals coming from boards of
PSBs for consolidation.
Except Bank of Baroda, all three banks - IDBI Bank Ltd, Oriental
Bank of Commerce and Central Bank of India - are under the RBI's Prompt
Corrective Action (PCA) framework.
The PCA framework is a mechanism to maintain sound financial
health of the banks. It facilitates banks - in breach of risk thresholds for
identified areas of monitoring such as capital and asset quality - to take
corrective measures so that they are protected from going into financial
crisis.
Once placed under PCA, the banks are barred from distributing
dividends, remitting profits and disbursing fresh loans. Banks are also stopped
from expanding their branch networks and need to maintain higher provisions.
Recently, IDBI Bank created a special department for managing bad loans and
monitoring credit after it was put under watch by the RBI
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