Modi Government to Merge Public Sector Banks Soon

The National Democratic Alliance (NDA) government has prepared its mega plan to merge multiple sets of public sector banks (PSB) and is expected to announce the short term, as per the various sources.

On Friday, the financial services department in the ministry of finance called a meeting with the chief executives of ten public sector banks, which are considered the leading contenders for the merger.

Banks that were invited for consultations on Friday:

Union Bank of India, Canara Bank, Punjab National Bank, United Bank, Oriental Bank of Commerce, United Bank, Allahabad Bank, Corporation Bank, Syndicate Bank and Andhra Bank.

"The PSB merger will be announced anytime soon as part of the government's reforms agenda," said a top source aware of the development.

Punjab National Bank, Union Bank of India and Canara Bank might be banks which will be incorporating other PSBs.

"It looks like PNB will be merged with three more banks, including Andhra Bank and Oriental Bank of Commerce," an additional source said.

Recently, Finance Minister Nirmala Sitharaman in her press briefings has been hinting about two more sets of reform measures that the government is prepared to announce.

For the first time, under the mandate of the Narendra Modi government, two mergers of PSB were carried out: Firstly, five associate banks and Bharatiya Mahila Bank merged with State Bank of India in April 2017, and Secondly, Dena Bank, Vijaya Bank merged with Bank of Baroda, which came into force on April 1, 2019.

Before formulating a plan for the merger of PSB, the central government should consult the RBI under the Banking Companies (Acquisition and Transfer of Companies) Acts of 1970 and 1980.

The sources reveal that the central government has already consulted the RBI about its merger plans earlier this year. A group must approve the plan for the merger of PSB of ministers, known as the alternative mechanism. Sitharaman and the Minister of Commerce and Industry, Piyush Goyal, are part of this.

"India needs fewer, mega banks which are strong, because in every sense, from borrowing rates to optimum utilisation, the economies of scale as far as banking sector are concerned are of great help," Arun Jaitley former finance minister had said earlier this year.

The central government has found value in merging PSBs, especially after the two mergers have shown successful results. In the first quarter of this financial year, the net profit of the Bank of Baroda soared 34% to Rs 710 crore rupees. This was the first result announced by the bank after its merger with Vijaya Bank and Dena Bank.