Finance Ministry Amends Letter, Ends PSU Bank Merger Speculation
The Union finance ministry clarified the agenda for an upcoming parliamentary committee meeting, dispelling rumors of potential mergers between public sector banks. Speculation arose regarding UCO Bank merging with Union Bank of India and Bank of India merging with Bank of Maharashtra. However, the ministry's letter addressed to bank chiefs and the RBI governor highlighted informal discussions on the regulatory framework post-merger, leading to misinterpretation.
The initial letter's mention of a "regulatory mechanism in the post-merger scenario" sparked speculation about impending mergers, particularly Union Bank's potential merger with UCO Bank. Yet, the finance ministry's subsequent clarification eliminated the word "merger" from the agenda, confirming that there have been no discussions or plans for such mergers. An executive director from one of the banks emphasised that there were no talks with the government regarding mergers and that the letter was misunderstood.
The mention of the "post-merger scenario" referred to the mergers that took place two years ago, on 1 April 2020, when 10 PSU banks merged to form four entities. These mergers included Oriental Bank of Commerce and United Bank of India merging into Punjab National Bank, Syndicate Bank into Canara Bank, Allahabad Bank into Indian Bank, and Andhra and Corporation banks into Union Bank of India.
An RBI paper released in February highlighted that historically, bank mergers in India have positively impacted the banking sector, improving the financial performance and efficiency of acquiring banks. Presently, India has 12 PSU banks, down from the 27 that existed in 2017.
About a decade ago, public sector banks struggled with non-performing loans, prompting the government to take measures to restore their financial health, including capital infusion and bank mergers. With these banks now turning profitable, they have been seeking to raise equity capital this year, leveraging their improved valuations. Banks like Union Bank, Bank of India, Indian Bank, and Bank of Maharashtra raised capital through the qualified institutional placement (QIP) route, each securing significant amounts.
