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Corporation Bank and Indian Bank may be merged into Oriental Bank of Commerce

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Corporation Bank and Indian Bank may be merged into Oriental Bank of Commerce

The Indian banking sector has been on a major wave of consolidation over the last 2-3 years. The Central Government has been pushing through several Government reforms in collaboration with the country’s apex bank, the RBI (Reserve Bank of India). The merger of India’s largest bank, State Bank of India (SBI) with the Bharatiya Mahila Bank (BMB), State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Mysore and State Bank of Travancore was a mega exercise that was executed successfully. Another big-ticket merger was the amalgamation of Dena Bank and Vijaya Bank into the Bank of Baroda.

Now, speculation is rife in the banking sector about several other big mergers. The Government has reportedly held the view that for better performance of several beleaguered public sector banks (PSBs), consolidation is key while it will also create large banking entities that will offer improved service delivery to customers throughout the country.

Will Corporation Bank and Indian Bank be merged into Oriental Bank of Commerce?

Oriental Bank of Commerce (OBC) may be merged with Indian Bank and Corporation Bank as per latest reports and speculation. The new Government at the Centre is expected to start its next phase of banking sector consolidation soon. Here are some key aspects that have emerged so far:

  • OBC (Oriental Bank of Commerce) has reportedly asked for the approval of the Union Finance Ministry for merging with Corporation Bank and Indian Bank.
  • The Union Finance Ministry will be considering this proposal and deciding on it in the near future.
  • Yet, no official announcement has been made from the Ministry as of yet.
  • The Government may provide for a capital infusion of approximately Rs. 40-50,000 crore for PSBs. It has already ensured Rs. 1,06,000 crore for PSBs for FY2018-19 as per reports.
  • Investors in Indian Bank seem to be far from happy with shares of the bank coming down by 5% in terms of pricing sometime earlier. Yet, share prices were seen to go up by 1.21% and 2.85% for Corporation Bank and Oriental Bank of Commerce on the back of this development.
  • In case this merger goes through, it will be a part of efforts made by the Central Government to create a lesser number of healthier PSBs with bigger balance sheets with a view towards backing the growing demand for credit in the Indian economy while ensuring optimal resource utilization.
  • The experience of the previous two mergers has raised confidence of the Government about implementing such exercises in the near future.

Where the banks currently stand

Oriental Bank of Commerce (OBC), which was under some restrictions under the PCA (Prompt Corrective Action) framework of the Reserve Bank of India (RBI) till February 2019, witnessed Rs. 201.5 crore in net profit for the March quarter. This was a handsome performance in comparison to the net loss incurred of Rs. 1,650.22 crore in the year-ago period. Sequential profit growth was also a decent 39% as per reports.

Losses increased for Corporation Bank, touching Rs. 6,581.49 crore for Q4 FY2018-19 as compared to Rs. 1,838.39 crore in the same year-ago period. Indian Bank witnessed Rs. 190 crore as its net loss in the March quarter as compared to Rs. 132 crore in net profit for the year-ago period.

OBC has its headquarters at Gurugram at present while Indian Bank is headquartered in Chennai. Corporation Bank has its headquarters at Mangalore. There were previous reports which stated that PNB (Punjab National Bank) may be merged with Oriental Bank of Commerce and a few other smaller banking entities including Allahabad Bank, Punjab & Sind Bank and also Andhra Bank. However, with PNB still under stress, these plans may be shelved until the first quarter results come out for the bank in the current fiscal. PNB had a loss of Rs. 4,750 crore for the March quarter as compared to a net loss of a whopping Rs. 13,417 crore in the year-ago period post the Nirav Modi scam which broke out.

However, in Q3 FY2018-19, PNB had a small profit of Rs. 247 crore. In case this merger goes through, the new banking entity will have a combined tally of Rs. 4.8 lakh crore in advances and Rs. 6.6 lakh crore in deposits. The NPA ratio (net) by end-March 2019 stood at 3.75% and 5.71% for Indian Bank and Corporation Bank respectively while it was 5.93% for Oriental Bank of Commerce.

The merger of banks or amalgamation was emphasized upon in the Interim Budget for FY2019-20 where it was stated that mergers of public sector banks were carried out in order to get higher benefits resulting from better capital access, economies of scale and also for covering a bigger geographical zone in the country. It remains to be seen whether this merger goes through in the near future.

 

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