The government is regarding the merging of at least four state-run banks, including Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India, 2 people with direct knowledge of the development told the same.
If the plan goes through, the merged entity can turn to be the second largest bank in the whole nation, post the State Bank of India (SBI), with combined assets of Rs 16.58 trillion.
With the merger of state-run banks, the government is hopeful to help stem the rise in bad loans in their books at a time when poor asset quality has crippled the lending ability of some of them.
This merger can be also permitted to weak banks to sell assets, reduce overheads and shut money-losing branches.
The four state-run banks which are being proposed to be merged are under pressure with combined losses of Rs 21,646.38 crore in the year ended 31 March.
Queries emailed to IDBI Bank, Bank of Baroda, Oriental Bank of Commerce and Central Bank of India did not bring out any response.
The government’s likely move is also in line with the stance taken by the Reserve Bank of India (RBI).
In April 2017, Urjit Patel, RBI governor, had said that the Indian banking system can be better off if some public sector banks were combined to have fewer, but healthier entities, as it would help in dealing with the problem of stressed assets also.
Under the finance ministry, the department of financial services is also at the same time taking into account a 51% stake sale in IDBI Bank to a strategic partner, for Rs 9,000-10,000 crore, the people told on the anonymity of the condition.
“Dilution of (government) stake in IDBI Bank could also be achieved through stake sale to private equity investors,” said one of the two people cited above.
On 21 May, IDBI Bank said to the exchanges in a regulatory filling that a special resolution is all set to be placed for further issue of capital at its board meeting of 25 May.
On the very same day, the IDBI Bank informed the exchanges about a scrutinizer report for an increase in the bank’s authorized capital from the existing Rs 4,500 crore to Rs 8,000 crore.
The authorized capital increasement can also facilitate the sale of a stake of 51% or more, in the form of a preferential issue to investors.
Government officials declined to comment or saying anything about this case and stated that the matter is highly market sensitive.
finance minister Arun Jaitley, said, in his 2016 budget speech, said that the government was considering reducing its venture in IDBI Bank to less than 50%.
During fiscal 2018, IDBI bank’s gross non-performing assets approximately doubled to Rs 55,588 crore, which is 32.4% of its gross advances throughout the financial year.
