Impact Will Be Seen on Number of Public Sector Banks as Government Mulls Consolidation

The 21 public sector banks would get consolidated to 10-12 in the medium term. As part of a three-tier structure, there would be at least 3 to 4 number of banks as the size of SBI Bank which is the country’s largest lender.

In order to reduce the number of state-owned moneylenders and create 3-4 number of global-sized banks, the government is working on a consolidation agenda. The major focus of the government is to create 3 to 4 global-sized banks like the size of State Bank of India (SBI) and reduce the number of state-owned lenders to about 12. An official spoke to PTI said that a total of 21 public sector banks would be consolidated to 10-12 in the medium term and as part of a three-tier structure, there would be at least 3-4 banks as big as SBI.

The spokesperson from Government, further stated that some regional banks like Sind Bank, Andhra Bank and Punjab Bank will continue as independent entities while some mid-size moneylenders would also co-exist. Union Finance Minister Arun Jaitley had said in the last month that the government is “actively working” towards consolidation of public sector banks but declined to provide details, saying this was a price-sensitive information. As PTI report, the finance ministry is motivated by the success of SBI merger, and is now considering clearing another such merger proposal by the end of this fiscal year if bad loan situation comes under control by that time.

As per information by Zee Business, P&S bank and United Bank would merge into Bank of Baroda. In the meantime, Indian Overseas Bank, Syndicate Bank and UCO Bank will also merge into Canara Bank. The Zee Business report also mentions that IDBI Bank, Central Bank and Dena Bank will merge into Union Bank. And on the other hand, Andhra Bank, Bank of Maharashtra and Vijaya Bank will merge into Bank of India.

In February this year, government allowed the merger of these five associate banks with SBI. Later in March, the cabinet approved the merger of BMB as well. Back in 2008, State Bank of Saurashtra was first to merge with SBI. Two years later, State Bank of Indore was merged with it. While taking decision for merger, factors like geographical reach, regional balance, financial burden and smooth transition of human resources have to be taken into consideration. It is a fact to be noted that a very weak bank should never be merged with a strong one “as it could pull the latter down”. Former RBI governor C. Rangarajan, said that the system will have some large banks, some small banks, some local banks and so forth. He clearly states that “What is needed in the system is variety,”

Reports suggest that in the last consolidation drive, five associate banks and Bharatiya Mahila Bank (BMB) merged with SBI on 1 April, 2017, catapulting the country’s largest moneylender to among the top 50 banks across the world. State Bank of Hyderabad (SBH), State Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala (SBP), State Bank of Mysore (SBM), and State Bank of Travancore (SBT), apart from BMB, were merged with SBI, as per the PTI report. As a result, the merger enabled SBI to extended the total customer base to 37 crore with a branch network of around 24,000 and the number of ATMs across the country has reached to 59,000. The merged entity started operation with deposit base greater than Rs.26 trillion and advances level of Rs.18.50 trillion.

Recently, the Parliament was informed that 9 public banks out of 21, including Indian Overseas Bank and IDBI Bank, reported losses during 2016-17 while as many as 13 state-owned banks during the 2015-16 financial year had reported losses. As per details shared by Minister of State for Finance – Santosh Kumar Gangwar in Rajya Sabha on Tuesday, Indian Overseas Bank had reported a loss of Rs.3,417 crore in the last fiscal, while the amount was Rs.5,158 crore in case of IDBI Bank. Other loss making state-owned banks were Allahabad Bank, Bank of Maharashtra, Bank of India, Central Bank of India, Dena Bank, UCO Bank and Oriental Bank.