Informist, Friday, May 17, 2024
--Fin min source: May look at merging some PSU banks post elections
--Fin min source: PSU bks reporting healthy profit over last few qtrs
--Fin min source: Merger to help some PSU bks meet public float norm
By Priyasmita Dutta and Sagar Sen
NEW DELHI – In a rethink of the plan to privatise two public sector banks, the government is now contemplating an altogether different strategy to strengthen the banking sector. The finance ministry is now looking at merging certain state-owned banks in case the Bharatiya Janata Party-led National Democratic Alliance is re-elected to power in the ongoing General Elections, a senior finance ministry official said.
In the Budget for 2021-22 (Apr-Mar), Finance Minister Nirmala Sitharaman had announced plans to privatise two public sector banks. But after the inordinate delay encountered in a similar exercise for IDBI Bank, the government has been forced to reconsider the proposal to privatise other state-owned lenders since it is no longer confident of finding viable investors.
The proposed privatisation of IDBI Bank has been delayed due to various factors, including the due diligence process undertaken by the Reserve Bank of India. This privatisation was set to prepare the roadmap for privatisation of PSU banks in the future.
"The investment climate has changed in the last couple of years since the announcement was made. That time we were just coming out of the COVID-19 pandemic and there was a lot of pent-up investor appetite. Right now and going ahead, that does not seem to be the case," the official told Informist.
The official, however, added that the idea was still at a very nascent stage and there had been no official discussions with any of the stakeholders yet. "At this moment, it is just an idea that has been floated internally, and it is contingent on a number of factors that are still not very clear at this stage," the official said.
The government's preference for bank mergers over privatisation is also based on a desire to benefit from the improvement in profitability of public sector lenders over the last two years. More so, given that the difficult time for state-owned banks, when they needed huge infusions of government-provided capital, is now over. Between 2016-17 and 2021-22, the government infused significant funds, totalling over 3 trln rupees, into public sector banks. The last such round of capital infusion was in 2021-22, when the government provided 46 bln rupees to Punjab & Sind Bank.
"Banks have been reporting healthy financial results over the last few quarters and have been giving robust dividend to the government. In case we privatise banks, then it will just be a one-time income. In case we merge two PSU banks, then the government can reap benefit from all the effort it has put in over the last several years," the official said.
The total profit of 12 public sector banks in 2023-24 was over 1.4 trln rupees, up 35% from the previous year. These banks had collectively posted net profit of a tad over 1 trln rupees in 2022-23.
In case the government decides to merge certain smaller banks with their larger peers, it will also help it meet the Securities and Exchange Board of India's public shareholding norms that mandate a minimum public shareholding of 25% in all companies. In case a small public sector bank with a small public float is merged with a large PSU bank with a significant public float, then the larger bank's position will not change substantially in terms of shareholding.
Currently, of the 12 public sector banks, five do not comply with the shareholding norms. These include UCO Bank with a public shareholding of 4.61%, Central Bank of India with 6.92%, and Punjab & Sind Bank with 1.75%. The other two banks in the league are Bank of Maharashtra with a 13.54% public shareholding and Indian Overseas Bank with 3.62%.
In April, the finance ministry had asked these banks to increase the minimum public shareholding to 25% by Aug 1. After this, UCO Bank said it will issue up to 4 bln shares, with a face value of 10 rupees each, to help meet the mandated minimum public shareholding norms, while Chennai-based Indian Overseas Bank plans to raise equity capital of up to 50 bln rupees. The board of Bank of Maharashtra had also approved raising up to 75 bln rupees through equity instruments.
Under the government's new strategic disinvestment policy, banking has been categorised as a strategic sector, where the government needs to maintain a bare minimum presence.
The Narendra Modi government has carried out mammoth PSU bank mergers in recent years. Not long after kickstarting its second term, the government had in August 2019, announced a mega merger plan for 10 public sector banks. Effective Apr 1, 2020, Oriental Bank of Commerce and United Bank of India were merged into Punjab National Bank, Andhra Bank and Corporation Bank were merged into Union Bank of India, Syndicate Bank was merged with Canara Bank and Allahabad Bank was merged into Indian Bank.
Prior to this, five associate banks of State Bank of India--State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad and State Bank of Patiala-- along with Bharatiya Mahila Bank were merged with State Bank of India in 2017. End
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