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Second round of PSB merger: Govt may call PNB, Bank of India, Union Bank for discussion

New Delhi: After the merger of Bank of Baroda, erstwhile Dena Bank and Vijaya Bank, the government is likely to go for another round of consolidation in the PSU bank space, the Economic Times reported citing finance ministry officials. The lender that may be called for discussion include Punjab National Bank (PNB), Union Bank of India and Bank of India (BoI), the business daily mentioned.

“We wouldn’t like to wait for too long,” the official quoted above told ET, indicating that some merger activity is on the cards around second or third quarter of the current fiscal year. “If the banks are not able to give options then the alternate mechanism (AM) group can make suggestions.”

It may be noted that in October 2018, the government had proposed the merger of three banks — Bank of Baroda, Vijaya Bank and Dena Bank — to create the country’s third-biggest lender through an alternate mechanism. With effect from April 1, 2019, both Vijaya Bank and Dena Bank are merged with Bank of Baroda.

“It need not be a tripartite merger again. We will be looking at various combinations. It has to be organic, besides we will like some of these large banks to further consolidate their balance sheets in the first two quarters,” the publication quoted the official as saying.

However, another government official believes that it was not the opportune time for merger in state-run banks.

“Bank of India has just come out of the Reserve Bank of India PCA (prompt corrective action) framework. Union Bank of India and Punjab National Bank are also in early recovery stage,” he told ET.

Worth mentioning here is the PCA framework puts certain lending restrictions on financially weak banks. In February this year, the RBI had pulled out Bank of India, Oriental Bank of Commerce and Bank of Maharashtra from its PCA framework

A senior executive with a PSU bank said smaller banks have begun consolidating their operations in the same geography by closing overlapping branches and focusing on niche areas. “Merger is not the antidote for every banking woe. The government should not force mergers only to create too-big-to-fail structures,” he said.

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