PNB and Canara bank were on government's list for next merger, with which bank?

Bank of Baroda’s healthier financials, strong brand, technology and international presence helped the finance ministry settle for it as the anchor for an amalgamation with Dena bank and Vijaya Bank, instead of Canara Bank and Punjab National Bank, among others, which were considered for carrying forward the first consolidation exercise in the public sector space.

PNB was ruled out as its recovery is seen to be a few quarters away after a Rs 14,000-crore fraud, allegedly orchestrated by Nirav Modi and Mehul Choksi, leaving Canara Bank as the other option to anchor the amalgamation. But it was seen to be weak on a few financial parameters. Besides, the new entity would have been focused more on south India.

Financial services secretary Rajiv Kumar said, “We did not want consolidation for the sake of it. The first guiding principle was to create a healthy bank that was large in size. The second principle was to have an entity that had a strong brand, technology and a good reach.”

The merger of the three banks is one of the many ways through which the government is trying to deal with the bank NPA crisis. The merger of three banks clearly unveils a formula -  that the government decided to merge the three banks in accordance with their financial health. Among the three, Bank of Baroda has least NPA problem, followed by Vijaya Bank and Dena Bank. The bank merger formula, thus, will be Very big bank+ better bank+worst bank. 

In Dena bank, Vijaya and BoB, the government found the right fit. “Dena bank has a strong CASA base with a good retail and MSME presence. Vijaya Bank has been sensible in its lending, while BoB offers a good international presence, a strong brand and a good tech platform. It’s a win-win deal for the three banks and will result in a massive cost rationalisation,” the secretary added.

While consolidation has been on the government’s radar, the fraud at PNB pushed back the plan by a few months. But it has been in the making for at least four-five months, with the team at the department of financial services looking at various permutations and combinations. A source said, “It was an in-house exercise. Secrecy had to be maintained at all costs.”

Two sets of probable bank mergers in future. It said that the government is mulling the merger of more banks. However, this year there will not be any further merger as the amalgamation of the first lot of three banks will itself take 3-6 months. 

1. Punjab National Bank, Indian Bank, Indian Overseas Bank

The current business of PNB, Indian Bank and Indian Overseas Bank range in Rs 10,45,650 crore, Rs 3,74,550 crore and Rs 3,61,928 crore respectively. The deposits in three banks are Rs 630311 crore, Rs 210170 crore, Rs 213168 crore respectively. 

The Net NPA of PNB is 10.58%, Indian Bank 3.80% and Indian Overseas Bank 15.10%. The number of branches of these three banks are 6,993, 2,819 and 3,326 respectively. 

2. Canara Bank, Syndicate Bank and UCO Bank 

The total business of Canara Bank, Syndicate Bank and UCO Bank is Rs 8,63,359 crore, Rs 4,74,976 crore and Rs 2,76,784 crore respectively. Deposits in the three banks are Rs 5,00,866 crore, Rs 4,05,939 crore and Rs 1,78,211 crore.