After the merger of Bank of Baroda, Vijaya Bank, and Dena Bank in October last year, some more public sector banks may soon receive an invitation from the government to discuss another round of mergers in the sector, according to news reports. These may include Punjab National Bank (PNB), Union Bank of India (UBI) and Bank of India (BoI).
“We wouldn’t like to wait for too long. If the banks are not able to provide options, then the alternate mechanism (AM) group can make suggestions,” a senior Finance Ministry official said according to news reports. He hinted there could be a merger in the second or third quarter of the current fiscal.
The merger process of Bank of Baroda, Vijaya Bank and Dena Bank had started in October last year. On 1 April, Vijaya Bank and Dena Bank were merged into Bank of Baroda to form the third-largest bank in the country. However, the official said the second merger does not have to involve three parties.
“We will be looking at various combinations. It has to be organic. Besides, we will like some of these large banks to further consolidate their balance sheets in the first two quarters,” the official told the newspaper Economic Times.
On the flip side, some government officials do not believe now is the right time for another merger as BoI has just emerged from the Reserve Bank of India’s (RBI) prompt corrective action (PCA) framework. The PCA is a set of guidelines set by the RBI for banks that have weak financial metrics.
The other two, PNB and UBI, are also in recovery stages, the report quoted one government official as saying. Other than BoI, Oriental Bank of Commerce and Bank of Maharashtra had been pulled out of the PCA framework in February. Mergers are not the answer to every problem in the banking sector and the government should open itself to alternatives other than creating too-big-to-fail structures, a senior executive at a public sector bank told the newspaper.
Shares fall
Shares of Punjab National BankNSE -3.69 per cent (PNB), Bank of India (BoI) and Union Bank of IndiaNSE -4.60 per cent declined over 5 per cent each in today’s trading session amid reports that the government is planning a second round of merger in public sector banks. Shares of Union Bank of India, BoI and PNB traded 4.77 per cent, 4.34 per cent and 4.20 per cent lower, respectively, on BSE.