A week after a slew of economic reforms to improve the supply side and demand side of the economy through easing of FDI norms and revision of income tax rates, Finance Minister Nirmala Sitharaman on Friday announced the consolidation of ten public sector banks (PSB).
The banks to be merged are Punjab National Bank (PNB), Oriental Bank and United Bank; Canara Bank and Syndicate Bank; Union Bank, Andhra Bank and Corporation Bank; and Indian Bank and Allahabad Bank. Sitharaman announced the merger in a meeting with the executives of multiple public sector banks (PSB).
Big banks enhanced capacity to increase credit, Sitharaman said. The finance minister also said banks will be provided adequate capital.
Last week, she had announced that the Rs 70,000 crore capital infusion for PSBs for the current fiscal would be front-loaded.
Financial Services Secretary Rajiv Kumar, who was also present at the press conference, said there was no retrenchment in the past consolidations, including of SBI, and service conditions of employees improved.
"Employees will only benefit with the mergers," he added.
Post the consolidation announced on Friday, Punjab National Bank will have business size of Rs 17.94 lakh crore, becoming the second largest PSB after SBI with a business of Rs 52.05 lakh crore.
Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sind Bank will continue to function as earlier as they have strong "regional focus", Sitharaman added.
The consolidated Canara Bank will be the fourth largest bank with business of Rs 15.2 lakh crore, followed by Union Bank of India at Rs 14.59 lakh crore.
After subsuming Allahabad Bank, Indian Bank will be the seventh largest state-lender with business size of Rs 8.08 lakh crore.
Bank of Baroda, after the merger with Vijaya Bank and Dena Bank, had become the country's third largest bank. It has a business of Rs 16.13 lakh crore.
The number of PSBs will be reduced from 27 to 12 after the merger. The mergers were done after looking at the commercial and economical viability of the banks forward.
The finance minister also 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.
She added that 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.
Punjab National Bank was rocked by the Nirav Modi scandal last year, which led to losses of $1.4 billion and raised questions over bank governance.
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.
The Modi government, in its first tenure, had pumped in $36 billion of funds to revive banks.