Finance Minister’s Press Conference: Nirmala Sitharaman Announces Series Of State-Run Bank Mergers

Finance Minister Nirmala Sitharaman announced that the government has decided to merge ten public sector banks into four large lenders.

They are:

• Punjab National Bank + Oriental Bank of India + United Bank of India
• Canara Bank + Syndicate Bank
• Union Bank + Andhra Bank + Corporation Bank
• Indian Bank + Allahabad Bank

India will now have 12 public sector banks—Punjab National Bank, Canara Bank, Union Bank of India, Indian Bank, State Bank of India, Bank of Baroda, Bank of India, Central Bank of India, Indian Overseas Bank, UCO Bank, Bank of Maharashtra, and Punjab and Sind Bank.

Meanwhile, India’s GDP growth fell to a six year low of 5 percent. Read that story here.

Punjab National Bank’s Sunil Mehta told BloombergQuint that the merger of three banks will bring in a lot of synergies.

The government does not see any need to exceed the bank recapitalisation amount of Rs 70,000 crore budgeted in this fiscal, Rajiv Kumar said.

This roadmap is final and there could not be any more PSU bank mergers, Rajiv Kumar said. “Twelve is the right number as of now.”

There are no chances of retrenchment with the bank mergers, Kumar said. He said instead their employment benefits are improving due to the merger. “We will ensure that there is no harm to any employee at any stage.”

This is the right time to consolidate banks to enable them to make India a $5 trillion economy, said Department Of Financial Services Secretary Rajiv Kumar. He said that alternate mechanism has given its approval for the mergers.

The banks’ boards will consider the proposals. Each bank will take the proposal to their respective boards and then the permission will be sought from the RBI.

The merger will create six globally competitive banks, he added.

Nirmala Sitharaman gave approximate numbers for the amount of capital that will be infused in state-run banks. This capital infusion will be for growth and not for consolidation, she said.

• Punjab National Bank: Rs 16,000 crore
• Union Bank of India: Rs 11,700 crore
• Bank of Baroda: Rs 7,000 crore
• Canara Bank: Rs 6,500 crore
• Indian Bank: Rs 2,500 crore
• Indian Overseas Bank: Rs 3,800 crore
• Central Bank of India: Rs 3,300 crore
• UCO Bank: Rs 2,100 crore
• United Bank: Rs 1,600 crore
• Punjab & Sind Bank: Rs 750 crore

Nirmala Sitharman said that having strong governance at state-run lenders is as important as merging weak ones with the strong ones. She announced a series of reforms aimed at this:

• Board committee of nationalised banks will appraise the performance of general manager and above-level employees.
• PSBs will recruit a chief risk offer from the market, at market-linked compensation.
• To enable succession planning, boards will decide the system of individual development plans for all senior executive positions.
• PSBs will also be given flexibility to prescribe the residual service of two years to appoint general manager-level employees.
• Large PSBs have also been given flexibility to enhance the sitting fees of non official directors on the board.
• Non official directors functions to be analogous to independent directors
• The management committee loan sanction threshold has been enhanced to 100 percent.

There will be 12 public sector banks compared with 27 state-run lenders in 2017, Sitharaman said.

Each of these mergers will see one anchor bank, while the others will be amalgamated into them.

Fourth merger announced today is of the Indian Bank and Allahabad Bank.

The third merger is of Union Bank, Andhra Bank and Corporation Bank. This will have the fourth largest branch network with 9,609 branches.

The second consolidation, Sitharaman said, will be of Canara Bank and Syndicate Bank.

This merger has large cost-reduction potential due to their network overlap.

The merged entity will have a business of Rs 15.2 lakh crore and the third largest branch network of 10,342 branches.

Sitharaman said that Punjab National Bank, Oriental Bank of Commerce and United Bank will be brought together.

The combined entity will become the second largest public sector bank with a business of Rs 17.95 lakh crore.

Nirmala Sitharman said that the government will focus on consolidation to unlock banks’ potential. Big banks with enhanced capacity to increase credit, she said.

Nirmala Sitharaman said that the consolidation of the three banks has resulted in good outcomes.

Operations have been rationalised, verticalisation has been initiated and there were no retrenchments after the merger, she said.

She added that Bank of Baroda has seen robust CASA growth after the merger. "There is a clear indication of rapid growth and high profitability for BoB after the merger," Sitharaman said.

Nirmala Sitharaman said that record levels of loan recovery has been reached due to the reforms implemented by the government. In FY19, there was recovery of Rs 1.21 lakh crore compared with over Rs 77,000 crore in FY18, she said.

Absolute amount of bad loans too have declined by Rs 1 lakh crore to Rs 7.9 lakh crore, according to her presentation. Provision coverage ratio is at a seven year high, she added.

Finance Minister said that some of the measures announced last week have already been initiated.

Sitharaman said that eight public sector banks have already announced repo rate-linked loan products.

She added that the partial credit guarantee scheme for NBFCs and HFCs has been initiated and sanction of Rs 3,300 crore has been done already.

In September last year, the government had announced the amalgamation of three public sector lenders -- Bank of Baroda, Dena Bank and Vijaya Bank. The merged entity reported a profit of Rs 710 crore in April-June 2019.

Before that, the State Bank of India had merged with the State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala, State Bank of Hyderabad; and the Bharatiya Mahila Bank effective April 1, 2017.

A new proposal of merging public sector banks will have to be put before Alternative Mechanism for PSBs consolidation.

In an effort to boost India’s economy from a five-year low, Finance Minister Sitharaman announced a slew of measures on Aug. 23 including removal of the tax surchange on foreign portfolio investors, front-loading of the Rs 70,000-crore bank recapitalisation plan and steps to revive the automotive industry.

At that briefing, she had said that the government was finalising more measures to prop up the economy and that the announcements would be made shortly.

On Aug. 28, the Narendra Modi government relaxed foreign direct investment rules for single-brand retail, commercial coal mining and contract manufacturing. The cabinet also approved Rs 6,268-crore sugar export subsidy.

Finance Minister Nirmala Sitharaman will hold a press conference at 4 p.m. today regarding a proposal to merge some state-run banks, a government official told Bloomberg in New Delhi asking not to be named, citing rules.

The finance ministry called a meeting of chief executive officers of 10 banks, including Union Bank of India, Canara Bank, Punjab National Bank, Oriental Bank of Commerce, Allahabad Bank, Corporation Bank, Syndicate Bank and Andhra Bank, Business Standard reported earlier today.