PSB merger review: Ensure smooth credit flow, says FM Nirmala Sitharaman

Finance minister Nirmala Sitharaman

Finance minister Nirmala Sitharaman on Thursday met chief executives of amalgamating public-sector banks (PSBs) and is learnt to have asked them to ensure that credit flow to MSMEs and other critical sectors of the economy is not hampered due to the biggest consolidation exercise in the banking space.

The Cabinet earlier this month approved the amalgamation of 10 PSBs to create four larger lenders and the move will come into effect from April 1.

In the meeting to review the planning and preparedness for the proposed amalgamation, the minister also directed anchor banks to minimise disruption to customers, banking sources told FE. The banks’ plans to boost both credit and deposits and year-wise synergy after the merger were also discussed.

The amalgamation exercise comes at a time when non-food credit data showed growth crashed to just 6.3% year-on-year in the fortnight through February 14, the lowest since May 2017. In the December quarter, the outstanding advances of the 10 amalgamation candidates dropped to just 3.9% year-on-year, against 6.8% of SBI and about 7% for scheduled commercial banks, with some bankers blaming the uncertainty over the merger deadline for the decline in credit push at the branch level. Since the Cabinet clearance has ended any uncertainty about the timing of amalgamation, credit flow in some of these banks is expected to improve now, a senior government official said.

Sitharaman also took stock of the plans for delivery of banking services and products to customers after the amalgamation. Following the Cabinet approval, the banks have finalised the post-merger share swap arrangement for investors.

The government had in August last year announced that Oriental Bank of Commerce and United Bank would be merged into Punjab National Bank (PNB) to create the country’s largest state-run bank after SBI, with a total business of close to Rs 18 lakh crore. Similarly, Syndicate Bank is to be amalgamated with Canara Bank, and Andhra Bank and Corporation Bank will be merged into Union Bank. Also, Allahabad Bank will be amalgamated with Indian Bank.

The consolidation exercise is aimed at creating only a few but strong banks to support the rising credit appetite of the economy, help reverse a slide in economic growth and cut costs through greater synergy. Coupled with the two sets of consolidations done in 2018, the latest merger decision will reduce the number of public sector banks to 12 from 27 in 2017. Each of the amalgamated entity will have a business of over Rs eight lakh crore, according to an official statement.

Citing an example of the merger of Dena Bank and Vijaya Bank with Bank of Baroda, Sitharaman, after the Cabinet meeting this month, had said the operating profit of the resulting lender had improved and retail loans were sanctioned in 11 days on an average as compared to 23 days earlier.

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