Big PSU bank merger on cards if Modi wins 2019 election; PNB may merge these banks with itself

The government is planning to merge state-run Punjab National Bank with two other PSU banks — Oriental Bank of Commerce, Andhra Bank and Allahabad Bank after the new administration is in place following the 2019 Lok Sabha elections, Reuters reported citing unidentified sources. This is in a bid to keep 5-6 larger banks in the country, which the ruling Narendra Modi-government has been advocating for some time. Notably, this would be a significant merger after the state-run Bank of Baroda was merged with Dena Bank and Vijaya Bank under the current NDA regime. The BoB merger became effective from April 1.

PNB could begin the process of merger with OBC, Allahabad Bank and Andhra Bank in the next three months, according to Reuters. Besides BoB merger, Life Insurance Corporation also took over IDBI Bank by acquiring more than 51 per cent in the lender in January this year. In 2017, India’s largest lender State Bank of India was merged with its five associate banks along with Bharatiya Mahila Bank.

Notably, Finance Minister Arun Jaitley has promoted the idea of consolidation in the public sector banks to make them globally competitive and better players in the banking space. “I think India needs fewer and mega banks which are strong because in every sense, from borrowing rates to optimum utilisation, the economies of scale as far as the banking sector is concerned are of great help,” Arun Jaitley had said in February.

After the announcement of Bank of Baroda’s merger with Vijaya and Dena Bank, the government had serious plans to go ahead with another merger but it was shelved after the BJP got massive defeat in the assembly elections in Madhya Pradesh, Chhattisgarh and Rajasthan. The finance ministry sources had then said the government didn’t want to risk their chances of winning in the Lok Sabha elections.

The Reserve Bank of India in its research paper in April had also pitched for further consolidation in the banking sphere as the larger banks are more labour cost efficient. Today, the Punjab National Bank shares are trading down at Rs 84.15 on BSE against the last close of Rs 86.15 per share.

Punjab National Bank