In a mega move towards further consolidation of public sector banks, the Government is reportedly mulling over a proposal to merge Union Bank of India, Punjab National Bank (PNB) and Bank of India (BOI). It goes without saying that merging these three banking sector titans will naturally create another huge banking entity with a gargantuan customer base. According to the latest reports, the Union Finance Ministry has reportedly been holding discussions with quite a few PSBs (public sector banks) with regard to another season of mergers for the Indian banking sector.
In fact, some of these PSBs may soon get invites from the Central Government for discussions about mergers in this space as per reports. These banks may include Union Bank of India, BOI and PNB as well. Officials from the Union Finance Ministry are reportedly pro-active on merger discussions and do not wish to keep the issue pending for a long duration. In case banks cannot offer feasible options towards this end, then suggestions may put up by the AM (alternate mechanism) group as well. This hints at a mega merger coming your way sometime in the second or third quarter of the present fiscal. The entire procedure for merging Dena Bank and Vijaya Bank with Bank of Baroda had commenced from October 2018 and both entities were merged into BoB successfully on the 1st of April, 2019. This new banking entity is already the third biggest banking organization in India.
Current market indications point at an impending merger
Officials have reportedly stated that while all three banking entities may be involved in a merger, it does not have to be that way compulsorily. Multiple combinations are reportedly being assessed by the Government since it wishes that some of these big PSBs should keep consolidating balance sheets over the first couple of quarters in the present financial year. Some officials on the other hand have reportedly expressed their concerns regarding another merger. They cite the fact that Bank of India (BOI) has only come out of the PCA (prompt corrective action) mechanism of the RBI (Reserve Bank of India). Punjab National Bank (PNB) is also recovering from several issues (remember Nirav Modi anyone?) and so is Union Bank of India (UBI).
Bank of Maharashtra and Oriental Bank of Commerce have also managed to be released from the PCA mechanism sometime earlier apart from Bank of India. These government officials feel that mergers may not always be the best solution for the issues that are plaguing the Indian banking space. The Government, according to this section of experts, should certainly be looking at other options instead of creating Goliath sized banking entities that cannot afford to fail at all. The Government is however likely to issue invitations to several banking entities for discussing merger possibilities. These may be determined by sizes of banks, current financial positions, benefits, issue, overall HR and the product mix along with geographical presence among other factors. However, those against any merger at the moment have also cited factors where smaller Indian banks have already started consolidation of operations in similar geographies through emphasis on niche segments and closure of overlapping bank branches.
What is significant is that PNB Chief Executive and Managing Director, Sunil Mehta, has reportedly stated sometime earlier that the bank has now turned around its operations and can look at available offers for the acquisition of other lending players. Additionally, any decision to merge 2 or 3 PSBs will not really be affected by the ongoing Lok Sabha elections and its results. This is because the BJP Government’s plan for merging PSBs and creating fewer entities is something that the Congress Party has not opposed. In fact, the Congress has also talked of 8 PSBs at the most for the country in its manifesto. As a result, irrespective of the results, the merger process will not be hampered according to reports. The successful merger of Vijaya Bank and Dena Bank with Bank of Baroda has brought the PSB count down to 18.
Organic consolidation and merger will be a key highlight of any subsequent decision. There was widespread speculation previously about a possible merger between Indian Overseas Bank (IOB), Punjab National Bank (PNB) and Syndicate Bank. Thereafter, there was speculation about a merger of Punjab and Sind Bank with Punjab National Bank and also Oriental Bank of Commerce. However, nothing has been confirmed as of yet. The discussions will of course be focused on the scenario at Punjab National Bank which is the second biggest lender in India.
It still remains to be seen whether a bank merger will be completed soon since the Bank of Baroda merger with Vijaya Bank and Dena Bank should be given a little time for stabilization prior to moving ahead with other such mergers. The overall financial health of the banks in question have to be assessed carefully prior to any final decision. It remains to be seen how much of an acquisition PNB can support at the moment. All in all, it is definitely an exciting prospect, imagining a merger of BOI, PNB and UBI. It’s almost as if common sponsor Reliance Jio bought out the Rajasthan Royals (RR) and Royal Challengers Bangalore (RCB) for amalgamation into its Mumbai Indians (MI). This will make sense to you if you’re a cricket and IPL fan! If not, let it suffice to say that any such merger possibility does have exciting implications for the Indian banking sector this year.