Bank merger back on table, Piyush to meet bank chiefs

New Delhi: The finance ministry is considering bank consolidation as one of the options to help weak banks survive. The cost of operations for banks is increasing and high NPAs and poor asset quality and low capital are adding to their woes. For the government, it is burdensome to recapitalise banks for continuation in business.

Finance minister Piyush Goyal has called a meeting with public sector banks (PSBs), including those under the RBI’s prompt correction action (PCA) framework, next week to discuss the possibility of mergers, among other issues. The meeting is also expected to take a call on issuance of recapitalisation bonds for some of the weak banks which need urgent capital infusion, sources said.

Ahead of this, Goyal will meet heads of PSBs based out of western and southern regions in Mumbai on Friday to resolve various issues concerning them. Of the 11 PCA banks, 7 are from these two regions. Goyal will also meet bankers from the eastern and northern region soon.

Of the 21 state-owned banks, 11 are under the RBI’s PCA framework, which means their lending capacities have been restricted along with expansion plans.
Due to their poor asset quality and bad recovery mechanism, their NPAs have been on the rise and they need government support for survival.

Of the Rs 2.1 lakh crore proposed bank recapitalisation, the government infused Rs 90,000 crore in PSBs during FY18 out of which over 60 per cent was for banks under PCA framework.

Worried at erosion of capital and the subsequent impact, the department of financial affairs had called for a meeting of these 11 banks. The ministry will meet PCA bank chiefs again next week to take stock of what have they done to improve their balance sheets and come out of the PCA framework. They will also discuss revamp roadmap and expect to work out their survival strategy by the month-end, said sources.

Chief of 15 PSBs from the southern and western regions will discuss with the finance minister the way forward for the Indian banking system, sources said.

This is the first meeting with the heads of the PSBs after their annual financial results for 2017-18. Most of the banks registered loss in the fourth quarter of the last fiscal. Punjab National Bank recorded a loss of Rs 13,416.91 crore for the quarter ended March 31, the largest ever quarterly loss by a bank. The lender provided for Rs 7,178 crore, 50 per cent of the total amount of Rs 14,356 crore liability with regard to the Nirav Modi fraud in the fourth quarter of 2017-18. The remaining amount will be covered in the three quarters of the current fiscal year.

Country's largest lender SBI reported Rs 7,718 crore loss for the January-March period, a steep hike from Rs 3,442 crore loss in the same period the previous fiscal. The jump in losses follows Rs 24,080 crore kept for provision towards bad loans after the RBI scrapped all loan restructuring schemes.

Almost all banks reported an increase in non-performing assets (NPAs) due to the February 12 guidelines of the RBI. The new guidelines have specified framework for early identification and reporting of stressed assets.

As per the revised guidelines, the banks will be required to identify incipient stress in loan accounts, immediately on default, by classifying stressed assets as special mention accounts (SMA) depending upon the period of default.

The 11 banks on RBI’s watchlist are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra. Together, these banks accounted for Rs 52,311 crore of the Rs 88,139 crore capital infusion plan (through bonds and budgetary support) announced by the government for 2017-18.