Is the government planning a merger of these PSU banks to stem bad loans?

Last Updated: Mon, Jun 04, 2018 14:40 hrs
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Mumbai: The spate of the rising bad loans in the country may prompt the Department of Financial Services to consider a merger of some of the Public Sector Banks. This according to a report in the Mint.

The report revealed that the Department of Financial Services may be prompted to merge nearly four banks. This according to two unnamed yet highly placed people sources.

The Department of Financial Services may be merging IDBI Bank, Bank of Baroda, Oriental Bank of Commerce and the Central Bank of India

The resulting entity could emerge as the second largest PSU bank with combined assets of Rs 16.58 trillion. Also, these four banks reported of losses for the year ending March 31 2018, at a collective Rs 21646.38 crore.

The report further notes that poor asset quality had crippled the lending ability of these banks. A merger could pave way for selling of assets, reducing overheads and closure of money-losing businesses including branches.

The department of financial services has already contemplated various measures for controlling losses in IDBI Bank. One among the several measures suggested by the DFS is to reduce the centre's stake in the bank. A 51% stake sale at a price of Rs 9000-10,000 crore was being considered. Finance Minister Arun Jaitley in his budget speech during 2016 had spoken about reducing stakes in the bank to nearly 50%.

The last merger was observed during April 2017, when the government merged the State Bank with five of its associate banks and the Bharatiya Mahila Bank.

Banks who were facing stressed assets and resolution processes have been instructed by the Reserve Bank to move IBC (Insolvency Bankruptcy Code) courts. There has been a strong belief and optimism shown by the lenders, but it has so far failed to stem the losses.

Bad-loans have been a stress on the government exchequer and it impedes the flow of reforms. Minister of State for Finance Shiv Pratap Shukla said in a written reply in Lok Sabha during March that by December 2017, the gross non-performing assets (NPAs) of banks in the country amounted to Rs 8,40,958 crore.

SBI accounted for the highest gross NPAs at Rs 2,01,560 crore. Others from the public sector included Punjab National Bank at Rs 55,200 crore, IDBI Bank at Rs 44,542 crore, Bank of India at Rs 43,474 crore, Bank of Baroda at Rs 41,649 crore, Union Bank of India at Rs 38,047 crore and Canara Bank at Rs 37,794 crore. ICICI Bank, among the private sector lenders had gross NPAs amounting to Rs 33,849 crore.

Recently a Reserve Bank audit found a divergence of Rs 45,680 crores between it's own assessment and five large PSU banks. The discrepancies were revealed during an audit of loan-books from the previous fiscal year and are expected to increase provisioning norms .