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Government plans four PSB merger

Govt considers a merger between Bank of Baroda, IDBI Bank, Oriental Bank, Central Bank

Jun 6,2018 12:27pm
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As per latest reports, the government is considering merging four public sector banks (PSBs) which includes IDBI Bank Ltd, Central Bank of India, Bank of Baroda, and Oriental Bank of Commerce. According to the plan, if it works out, then the merged unit will become the second-largest bank in India after State Bank of India with combined assets of 16.58 trillion.  

 

The Indian government is hoping that this merger will help shoot the rise in bad loans in their books at a time when the poor asset quality has crippled the banks and reduced the ability to lend some. The merger will also permit the weak banks to sell their assets, shut-money losing branches, and reduce overheads. There is immense pressure on the four banks that are proposed to be merged with a combined loss of 21,646.39 crores in the last financial year that ended on 31 March 2018. As per a reliable source, who do not wish to be named, under the finance minister the department of financial services is simultaneously considering a 51% stake sale in IDBI Bank to a strategic partner for 9,000-10,000 crore. When queries were emailed to Bank of Baroda, Central Bank of India, IDBI Bank, and Oriental Bank of Commerce, they did not elicit any response.

 

On May 21, IDBI Bank informed exchanges that at its board meeting of May 25 a special resolution is to be placed in order to increase issue of capital. On the following day, the exchanges were informed by IDBI about a scrutinizer report for increasing the bank’s authorized capital from the existing 4,500 crores to 8,000 crores. The increase in the authorized capital would facilitate the sale of a stake of 51% or more and it will come in the form of a preferential issue to investors.

 

Government officials did not wish to comment on the matter stating that the information is highly market sensitive. Earlier, during the budget speech of 2016, finance minister Arun Jaitley told that the government was considering reducing their stake in IDBI Bank to less than 50%. In April 2017, the government had merged SBI with five of its associate banks and the Bhartiya Mahila Bank.

 

The Indian banking sector has been under immense stress in recent years. Banking industry research firms are keeping a close eye on the developments that will give better insight into the years to come.

 

© Sheer Analytics and Insights Pvt. Ltd., 2018