Changes to expect after FM’s announcements on PSU bank mergers

The next major merger has been announced between Canara Bank and Syndicate bank to create the fourth largest PSB in India with a combined business of Rs 15.20 lakh crore.

The FM also announced that banks will be infused with capital to be able to cover mergers and compliance costs.

Finance Minister Nirmala Sitharaman during the press conference to announce the merger of banks.

Post consolidation, the number of PSU banks will come down from 27 to 12 and this, according to Sitharaman, was "the right number of PSU banks to have". "We're trying to build the NextGen banks".

She also said that loan recoveries had hit a recover level of Rs.1,21,076 crore, while bad loans had come down from Rs. 8.65 lakh crore to Rs. 7.90 lakh crore. Andhra Bank is small and Corporation Bank is more strong in south as well as in other areas.

In April this year, Bank of Baroda amalgamated with Dena and Vijaya. Till now, risk management has not been given adequate focus in government banks that reflected in their asset quality.

The big banks have enhanced the capacity to increase credit, Sitharaman said in prelude to the announcement of new bank mergers.

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Elsewhere Andhra Bank and Corporation Bank are to merge with Union Bank, while Indian Bank will merge with Allahabad Bank.

She also said liquidity support to NBFCs and housing finance companies has improved as the partial credit guarantee scheme has been executed.

Announcing a slew of measures to empower the public sector banks, Nirmala Sitharaman said a board committee of nationalised banks will appraise the performance of general managers and higher positions.

The UCO Bank will get Rs 2,100 crore, the United Bank of India Rs 1,600 crore and the Punjab & Sind Bank Rs 750 crore. This was the second announcement within a week by the finance minister to revive the economy which is facing a slowdown. "Bank of India with Rs 9.3 lakh crore of business size and Central Bank with Rs 4.68 lakh crore of business size will continue", she added.

The finance minister also unveiled governance reforms in public sector banks, saying their boards will be given autonomy and enabled to do succession planning.

Modi's government has vowed to clean up the banking sector and reduce the number of state-run banks. In 2018, the government chose to merge the Bank of Baroda with the Vijaya Bank and the Dena Bank. In 2017, the State Bank of India was merged with five of its associate banks and the Bharatiya Mahila Bank.

During the presser, Sitharaman and the bureaucrats resent made it clear that there are no immediate plans on cards to cut government's stake in these banks below 51 percent.

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