Mumbai: The government is considering merging at least four state-run banks, including Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India, two people aware of the matter said. If the plan goes through, the merged entity will become the second-largest bank in the country after State Bank of India, with combined assets of ₹ 16.58 trillion. With the merger, the government hopes to help stem the rise in bad loans in their books at a time when poor asset quality has crippled the lending ability of some of them. The merger will also allow the weak banks to sell assets, reduce overheads and shut money-losing branches. The four banks that are being proposed to be merged are under pressure with combined losses of ₹ 21,646.38 crore in the year ended 31 March. The department of financial services, under the finance ministry, is also simultaneously considering a 51% stake sale in IDBI Bank to a strategic partner, for ₹ 9,000-10,000 crore, the people said on condition of anonymity. “Dilution of (government) stake in IDBI Bank could also be achieved through stake sale to private equity investors," said one of the two people cited above. Queries emailed to IDBI Bank, Bank of Baroda, Oriental Bank of Commerce and Central Bank of India did not elicit any response. On 21 May, IDBI Bank told the exchanges in a regulatory filling that a special resolution will be placed for further issue of capital at its board meeting of 25 May. On the following day, IDBI Bank informed the exchanges about a scrutinizer report for an increase in the bank’s authorized capital from the existing ₹ 4,500 crore to ₹ 8,000 crore. The increase in authorized capital could facilitate the sale of a stake of 51% or more, in the form of a preferential issue to investors. Government officials declined to comment, saying the matter is highly market sensitive. In his 2016 budget speech, finance minister Arun Jaitley said that the government was considering reducing its stake in IDBI Bank to less than 50%. The government had merged SBI with five of its associate banks and Bharatiya Mahila Bank in April 2017. Subscribe to Mint Newsletters * Enter a valid email * Thank you for subscribing to our newsletter.<doc-sep>The government is considering merging at least four state-run banks as part of a larger consolidation plan - triggered by rising bad loans. The banks that could face the merger are: Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India, according to a report in the Mint. These four banks are under pressure with combined loss of Rs 21,646.38 crore in the financial year 2017-18. The merger will allow the weak banks to sell assets, reduce overheads and shut money-losing branches, the report said. This year on May 25, Bank of Baroda reported a net loss of Rs 3,102.34 crore in the Jan-March quarter due to a jump in provisions for bad loans. The bank's provisions for non-performing assets for the quarter rose by 190 per cent year-on-year to Rs 7,052.53 crore in the last quarter of FY 2017-18. After BoB, IDBI was the next to report net loss due to bad loans. IDBI Bank posted a net loss of Rs 5,662.76 crore in Q4 with gross NPA rising to 27.95 per cent of its loans at March 2018. Except Bank of Baroda, all three banks - IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India - are under the RBI's Prompt Corrective Action (PCA) framework. The PCA framework is a mechanism to maintain sound financial health of the banks. It facilitates banks - in breach of risk thresholds for identified areas of monitoring such as capital and asset quality - to take corrective measures so that they are protected from going into financial crisis. Once placed under PCA, the banks are barred from distributing dividends, remitting profits and disbursing fresh loans. Banks are also stopped from expanding their branch networks and need to maintain higher provisions. Recently, IDBI Bank created a special department for managing bad loans and monitoring credit after it was put under watch by the RBI. According to the report today, the department of financial services is considering a 51 per cent stake sale in IDBI Bank to a strategic partner for Rs 9,000-10,000 crore. "Dilution of (government) stake in IDBI Bank could also be achieved through stake sale to private equity investors," the business daily reported, citing a source. Last year in August, the Union Cabinet chaired by Prime Minister Modi gave in-principle approval for public sector banks to amalgamate through an alternative mechanism. The government in a statement said that the decision would facilitate consolidation among the nationalised banks to create strong and competitive banks. Months later, the government constituted the mechanism under the chairmanship of Finance Minister Arun Jaitley. In a press statement issued then, the government said: "The decision is expected to facilitate the creation of strong and competitive banks in public sector space to meet the credit needs of a growing economy, absorb shocks and have the capacity to raise resources without depending unduly on the state exchequer." The mechanism will oversee the proposals coming from boards of PSBs for consolidation.<doc-sep>
The government is considering merging at least four state-run banks, including Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India, two people with direct knowledge of the development said. If the plan goes through, the merged entity will become the second largest bank in the country after State Bank of India (SBI), with combined assets of Rs 16.58 trillion. With the merger of state-run banks, the government hopes to help stem the rise in bad loans in their books at a time when poor asset quality has crippled the lending ability of some of them. The merger will also allow the weak banks to sell assets, reduce overheads and shut money-losing branches. The four state-run banks that are being proposed to be merged are under pressure with combined losses of Rs 21,646.38 crore in the year ended 31 March. Queries emailed to IDBI Bank, Bank of Baroda, Oriental Bank of Commerce and Central Bank of India did not elicit any response. The government’s likely move is also in line with the stance taken by the Reserve Bank of India (RBI). In April 2017, RBI governor Urjit Patel had said that the Indian banking system could be better off if some public sector banks were consolidated to have fewer, but healthier entities, as it would help in dealing with the problem of stressed assets. The department of financial services, under the finance ministry, is also simultaneously considering a 51% stake sale in IDBI Bank to a strategic partner, for Rs 9,000-10,000 crore, the people said on condition of anonymity. “Dilution of (government) stake in IDBI Bank could also be achieved through stake sale to private equity investors,” said one of the two people cited above. On 21 May, IDBI Bank told the exchanges in a regulatory filling that a special resolution will be placed for further issue of capital at its board meeting of 25 May. On the following day, IDBI Bank informed the exchanges about a scrutinizer report for an increase in the bank’s authorised capital from the existing Rs 4,500 crore to Rs 8,000 crore. The increase in authorized capital could facilitate the sale of a stake of 51% or more, in the form of a preferential issue to investors. Government officials declined to comment, saying the matter is highly market sensitive. In his 2016 budget speech, finance minister Arun Jaitley said that the government was considering reducing its stake in IDBI Bank to less than 50%. During fiscal 2018, IDBI bank’s gross non-performing assets almost doubled to Rs 55,588 crore, which is 32.4% of its gross advances during the fiscal year.