NEW DELHI: After years of debate, the government has set the ball rolling on merger of public sector banks, asking IDBI Bank and United Bank of India to prepare a consolidation plan. This is, however, expected to be preceded by State Bank of India taking its subsidiary State Bank of Patiala into its fold. While the finance ministry and state-run banks are looking at other merger options, work on these two proposals has already started, top-level government sources said. On June 4, TOI was the first to report that the government had begun consultations on consolidation of public sector banks. There are 27 state-run banks in the country, including five SBI subsidiaries. The government is keen to bolster the weaker entities but has asked banks to prepare a blueprint keeping in mind human resource issues, geographical spread and technology platforms. While the match-making exercise is so far confined to only four banks, sources said the wider consolidation plan would focus on regional synergies. For instance, Dena Bank may be allowed to merge with Punjab National Bank, while Oriental Bank of Commerce may be headed for integration with Bank of India. Although the proposals are only at preliminary discussion stage, Bank of Baroda, Canara Bank and Union Bank of India have been identified as potential acquirers for the weaker entities. For instance, United Bank of India was once again hit by loan defaults, which took a toll on its financial health. Similarly, Dena Bank and the other two Kolkata-based lenders — Allahabad Bank and Uco Bank — are seen in need for a helping hand. The government is, however, keen to avoid a merger of South India-based public sector banks given the strong community sentiment. As a result, sources said that United Bank of Indias merger with IDBI Bank made perfect sense. IDBI has a weak presence in the eastern part of the country where UBI has a strong branch network. Besides, IDBI Bank is seen to have a weak retail network, which can be strengthened by the Kolkata- headquartered lender. In addition, both the banks use common software, Infosys Finacle, which will make the merger easier. But there are some major hurdles that will need to be overcome. IDBI Bank, for instance, is governed by a different pay scale than other nationalized banks which follow the Indian Banks Association- negotiated structure. If the proposal goes through, this will be the first merger in the nationalized bank space since Punjab National Banks takeover of New Bank of India In contrast, State Bank of Patiala employees will gain from the merger with SBI as they will entitled to more benefits. SBI has already merged two of its subsidiaries - State Bank of Saurashtra and State Bank of Indore - as part of an exercise to reduce the pressure on capital and bring about synergies. Now, the sources said, the focus is on the northern region. When contacted, IDBI Bank chairman and managing director MS Raghvan said, Nothing has emerged. An executive at United Bank said that there has been discussion around how the consolidation exercise should be driven but the bank had not been asked to prepare a blueprint. SBI chairman Arundhati Bhattacharya could not be reached for comment but in a recent interview she had backed the idea of merger of subsidiaries. Link Times of India
Posted on: Sun, 27 Jul 2014 12:48:09 +0000
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