Is there any PSB left that can absorb weaker banks for merger?

Over half the 21 listed PSBs are unfit to absorb weaker state-owned banks : Last week, the Central Government announced the merger of three public sector banks — Bank of Baroda, Dena Bank and Vijaya Bank — setting off speculation that similar mergers of public sector banks may be around the corner. 

But given the deteriorating financial health of most public sector banks (PSBs), the fundamental question is whether there are any healthy PSBs left that can absorb the weaker ones. Of the twenty-one listed PSBs, eleven banks namely Dena Bank, 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 and Bank of Maharashtra have been placed under the Reserve Bank of India (RBIs) prompt corrective action (PCA) framework, making them unsuitable candidates to absorb other PSBs. 

This leaves another 10 possible contenders. But analysts that Business Standard spoke to say that the financial position of several of these banks is also in a precarious position. “While eleven banks are currently under PCA, another six PSBs namely, Andhra Bank, Union Bank, Canara Bank, Punjab and Sind Bank, Punjab National Bank and Syndicate bank meet some of the conditions laid out by the RBI in its PCA framework,” said Anil Gupta, sector head, financial services ratings, Icra. Now, five of the above mentioned six banks namely, Punjab National Bank, Canara bank, Union Bank, Syndicate Bank and Andhra Bank have net NPAs of more than six per cent. 

Punjab and Sind Bank barely makes the cut with net NPAs at 5.9 per cent. Moreover, the capital adequacy ratio of some of these banks is also lower than the desired levels. So, with Bank of Baroda, Dena Bank and Vijaya Bank being merged, this leaves only two banks — State Bank of India (SBI), and Indian Bank as possible contenders for anchor banks around whom the merger can be structured. SBI has already taken over its subsidiaries, leaving it with little room to absorb the bleeding banks. “I don’t think SBI will absorb any of these other public sector banks,” said a former chairman of a public sector bank. 

This leaves only Indian Bank. “The only possible contender to absorb other weaker public sector banks is Indian Bank because of its better capital position and asset quality,” said Gupta. - Business Stnadard.