Government mulls merging four more state-run banks to reduce losses
The government is mulling a major merger of at least four state-run banks - Bank of Baroda, IDBI Bank Ltd, Central Bank of India and Oriental Bank of Commerce - to give a boost to India's struggling banking sector, HT reports. This will make the entity the country's second-largest bank after SBI, with assets of Rs. 16.58 trillion. Here's what we know so far.
How will a merger help?
Last year, these banks together posted losses of Rs. 21,646.38cr. This, plus rising bad loans and poor asset-quality, hit their lending abilities. With this merger, they'll be able to cut down overheads and get rid of money-losing operations. In April'17, RBI Governor Urjit Patel had said the banking sector would be better if some loss-making ones were consolidated; they'd have fewer but healthier assets.
Government also mulls 51% stake sale in IDBI
In another proposal, the department of financial services is discussing a 51% stake sale in IDBI for Rs. 9,000-10,000cr. IDBI's gross non-performing assets nearly doubled to Rs. 55,588cr in fiscal 2018, which is 32.4% of its gross advances. An increase in authorized capital could facilitate the proposed stake sale in the form of a preferential issue to investors.
How are such mergers decided?
The merger recommendation comes after the government last year merged five associate banks and Bharatiya Mahila Bank with SBI, pushing it to among the world's top-50 banks. An official said many factors have to be considered while deciding a merger, including financial burden, geographical reach and regional balance. For example, merging a very weak bank with a strong one could "pull the latter down."
But the SBI merger didn't work out well for employees
Officials insist that during such consolidation, interests of all stakeholders, including staff and shareholders, are taken into account. However, the SBI merger left many employees of its associate banks disappointed. There were arbitrary transfers and loss of seniority, they complained. They weren't getting PF, allowances, increments and other benefits either, while having to work longer hours due to the increased traffic at SBI.
