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Modi Govt’s mega banking re-alignment in India

In second set of major policy announcements to address economic concerns, Union Finance Minister Nirmala Sitharaman recently announced merger of six public sector banks (PSBs) with four better performing anchor banks. This comes as a mega banking realignment by the Narendra Modi government in order to streamline their operation and size.
 
The Oriental Bank of Commerce (OBC) and the United Bank of India (UBI) have been merged into the Punjab National Bank (PNB). The PNB will now be the second largest PSU bank after the State Bank of India, which earlier saw a similar consolidation with all its associates merging with it. 
 
The Syndicate Bank has been merged with the Canara Bank while the Andhra Bank and Corporation Bank will be merged with the Union Bank of India. Besides this, the Allahabad Bank will merge into the Indian Bank. This will make it the seventh largest state-owned bank in India.
 
With this announcement of merger of banks, the total number of PSU banks will come down to 12. Before 2017, when the government rolled out bank-merger plan, the number of public sector banks in India was 27.
 
Why the decision to merge? 
 
Explaining the rationale behind these mergers, Nirmala Sitharaman said these decisions were taken with the objective of making them "global-sized banks”. Nirmala Sitharaman said the merger will also help in consolidating strong national presence and global reach of these banks.
 
These mergers come months after the Modi government announced merger of Dena Bank and the Vijaya Bank with the Bank of Baroda. This merger came into effect on April 1st this year.
 
Prior to this, the government had merged five associate banks of the State Bank of India and Bharatiya Mahila Bank with State Bank of India. These were State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad and also Bharatiya Mahila Bank effective April 2017.
 
The current scenario of Banks
 
  1. After Oriental Bank of Commerce and United Bank are merged into the Punjab National Bank, it will become India’s second largest bank. (SBI remains India’s largest bank). Once these three banks are merged it will create a bank with a business of Rs 17.95 lakh crore and have 11,437 branches.
2) Once the Syndicate bank is merged into the Canara Bank, the resultant bank will become India's fourth largest public sector bank with Rs 15.20 lakh crore business.
3) Union Bank, Andhra Bank, Corporation Bank to merge to become India's fifth largest public sector bank with Rs 14.59 lakh crore business.
4) The 12 public sector banks that India will have after today's decision are: State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Central Bank of India, Canara Bank, Union Bank of India, Indian Overseas Bank, Punjab and Sind Bank, Indian Bank, UCO Bank and Bank of Maharashtra.
 
The problem of NPAs
In her press conference, Union Finance Minister Nirmala Sitharaman also said that the profitability of public sector banks has improved and the total gross non-performing assets (NPA) have come down to Rs 7.9 lakh crore at end-March 2019 from Rs 8.65 lakh crore at end-December 2018.
 
Nirmala Sitharaman 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.
 
The finance minister said 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. Nirmala Sitharaman said to avoid Nirav Modi like frauds in the PSBs, the SWIFT messaging system has now been linked with the core banking system.
 

 

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