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Sources said that lenders such as IDBI Bank and Dena Bank are among those on the radar for a possible merger with some of the discussions in the banks having already started. “There are various options that are being explored but nothing has been finalised so far,” said an official source, who did not wish to be identified.
While the Narendra Modi government has been discussing the possibility of consolidation, it has failed to move beyond the merger of State Bank of India’s (SBI’s) associate banks with the parent. In addition, Bharatiya Mahila Bank was also merged with the country’s largest lender. In the past too, the UPA as well as the Atal Bihari Vajpyaee government had talked about the possibility but given up due to lack of interest from any of the lenders.
While finance minister Arun Jaitley had announced plans to sell stake in IDBI Bank a couple of years ago, the plan was dropped due to reluctance from a powerful section in the finance ministry. Similarly, the consolidation plan was put on the back burner after banks reported a spike in bad debt due to RBI’s provisioning norms. But with little signs that bleeding will stop immediately, along with the need to reform the public sector space, the finance ministry has once again opened the case of consolidation.
At the same time, it realises that with less than a year to go for general elections, it may not be in a position to push through a mega consolidation. Besides, sources said, involving more than two banks will make the entire process cumbersome and the new entity will be unwieldy. As a result, the exercise may be limited to one or two cases with IDBI Bank expected to be first off the block.
“The government will try to clean up things at IDBI Bank despite it being an election year. It can be through strategic sale or a merger,” said a source. While the bank has seen gross non-performing assets rise to 28 per cent of its loan book at the end of March 2018, the finance ministry believes that there has been an improvement in several crucial parameters.
But the options are limited, given that Punjab National Bank (PNB), the second largest state-run lender, is grappling with a massive fraud for which it needs to set aside another Rs 7,000 crore. The other “large players” such as BoB, Canara Bank and Union Bank too reported losses and have a limited appetite.
There are political issues to grapple with as well since a merger of one of the three Kolkata-headquartered lenders — Allahabad Bank, Uco Bank and United Bank — is certainly going to generate protests from Mamata Banerjee’s Trinamool Congress and the Left parties.