Big bank theory: Modi govt may merge PNB, OBC and PSB to create giant PSU lender

The government is weighing the possibility of the next phase of consolidation in the public sector banking space by amalgamating three lenders —Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and Punjab & Sind Bank (P&SB), sources told FE.

“An inter-ministerial group (called Alternative Mechanism) under Union minister Arun Jaitley will take a final call on this plan. The (merger) option is on the table but whether the government is going to bite the bullet ahead of polls and announce amalgamation or choose to wait is yet to be seen,” said one of the sources.

While the headquarters of PNB and Punjab & Sind Bank are in Delhi that of OBC is in Gurugram (Haryana).

The amalgamation, if approved, will be a part of the government’s efforts to create a few but strong banks with much larger balance sheets to support the rising appetite for credit of the fast-growing economy and enable optimum utilisation of resources. Upon amalgamation, the merged entity will have a combined business of over Rs16.5 lakh crore, deposits of Rs9.6 lakh crore and advances of close to Rs7 lakh crore, said the sources.

It will pip Bank of Baroda (into which Vijaya Bank and Dena Bank have recently merged) to become the second biggest public sector bank.

The net NPA ratio of PNB and OBC stood at 8.22% and 7.15%, respectively, as of December quarter, having improved from 11.24% and 10.48% at the end of March 2018.

PNB surprised analysts by recording a 7% rise in net profit in the three months through December 2018 following losses in three previous quarters. The Reserve Bank of India (RBI) last week lifted various restrictions on OBC, which had been under the prompt corrective action (PCA) framework since October 2017. Although Punjab and Sind Bank has witnessed losses in the first two quarters of this fiscal, on top of the losses in the last fiscal, it hasn’t made into the central bank’s watch list and its net non-performing asset (NPA) ratio of 5.25% is relatively decent.

The successful experience of merging State Bank of India with five of its subsidiaries and Bharatiya Mahila Bank, and the amalgamation of Bank of Baroda, Vijaya Bank and Dena Bank have given the government confidence that another round of consolidation can be handled without hiccups. However, given that PNB, OBC and Punjab & Sind Bank, while witnessing an improvement in their finances are not out of the woods yet, the government may choose to wait until their recovery takes roots, said another source.

Presenting the Interim Budget 2019-20, finance minister Piyush Goyal said: “Amalgamation of banks has also been done to reap the benefits of economies of scale, improved access to capital and to cover a larger geographical spread.”