FM to review PSU banks merger preparedness

Last Updated: Thu, Sep 19, 2019 10:52 hrs
Nirmala Sitharaman - Finance Minister (IANS Photo)

New Delhi: Finance Minister Nirmala Sitharaman will meet the heads of PSU banks on Thursday to discuss merger-related issues and review their preparedness to execute the process within the stated timeline of April 1, 2020.

"Tomorrow's PSB meeting will take up some of the key issues which relate to passing of low cost of borrowing and NPA settlement, doorstep banking and also the merger execution strategies to be taken up by the merging and anchor banks to iron out glitches," a source said.

The meeting will be held under the chairmanship of Sitharaman along with banking secretary Rajeev Kumar.A

A general review meeting took place recently on follow-up action on RBI rate cuts, introduction of repo-rate linked loan products to step up affordable credit.

Another issue on the agenda of Thursday's meeting could be one-time settlement policy on NPAs, including doorstep banking.

Consolidating the 10 banks into four and converting them into 'NextGen banks', the Finance Ministry has decided to merge United Bank of India (UBI) and Oriental Bank of Commerce (OBC) with Punjab National Bank (PNB) to give birth to India's second largest public sector bank after the State Bank of India (SBI).

The PNB merger, which will make the bank bigger than Bank of Baroda (BoB), will come into effect from April 1 next year. Besides PNB, Canara Bank and Syndicate Bank will also be merged into one.

Union Bank of India will amalgamate with Andhra Bank and Corporation Bank while Indian Bank will merge with Allahabad Bank. The individual merging banks are also preparing ground for the merger.

On Wednesdya, Indian Bank received the board approval for the merger with Allahabad Bank. Earlier on Monday, Allahabad Bank's board had also approved the merger proposal with Indian Bank, to make the amalgamated entity the seventh largest public sector lender of the country.

Canara Bank board has given approval for the merger with Syndicate Bank. Canara Bank has been designated as the anchor bank in this amalgamation.

From October 1 loans will be linked to external benchmarks move from the marginal cost of funds based lending rate (MCLR) regime. While most private banks are waiting for the September 30 deadline, some banks such as Citibank have already adopted external benchmarking, linking its loan products to the three-month treasury bill.

Though several benchmarks are available, most banks are opting for the repo rate. This is because repo is more stable compared to other benchmark rates, which change daily. These changes are only for floating rate loans.

So, while home loans and working capital loans will shift to the new regime, rates of auto loans and personal loans will remain unchanged.

The RBI in July allowed domestic banks to directly sell their bad loans (NPAs) in manufacturing and infrastructure sectors to investors abroad as part of one-time settlement (OTS) exercises which will allow overseas investors to take direct loan exposure to Indian corporates.

The defaulters, or stressed borrowers, can sell their assets in accordance with the OTS scheme, in order to raise external commercial borrowing (ECB) from abroad to repay domestic loans. This can ease off pressure on NPAs and can also help companies raise money on lower costs.