BoB, Canara may lead round 2 of bank mergers

Dena Bank, Vijaya Bank, UCO Bank among the acquisition targets

Bank of Baroda and Canara Bank could acquire smaller banks like Dena Bank, Vijaya Bank, UCO Bank, Union Bank of India and United Bank of India, officials said.

The government is holding discussions with six or seven banks to examine synergies as it pushes for consolidation among public sector banks. Kicking off the process, State Bank of India has already merged with its associate banks.

“Talks are on to see which fit will be the best. We should see something emerge from the discussions with six or seven banks over the next month or two,” an official told Business Standard.

He said Bank of Baroda and Canara Bank were two big banks that could acquire smaller ones. 

Canara Bank earned a net profit of Rs 1,122 crore during 2016-17, against a net loss of Rs 2,813 crore in the previous financial year. Its gross non-performing assets (NPAs) rose 8.1 per cent to Rs 34,202 crore as on March 31, 2017. Similarly, Bank of Baroda earned a net profit of Rs 1,383 crore in FY17, against a net loss of Rs 5,396 crore in the previous year. Its NPAs increased by 5.4 per cent to Rs 42,719 crore as on March 31.

Dena Bank and Vijaya Bank were among the banks that could be merged, he added.

The consolidation may increase the recapitalisation requirement for the current financial year to beyond Rs 10,000 crore as was provided in the Budget. "In case of consolidation we may need to increase the capitalisation limit for the fiscal," said one of the officials.

Bank of India, which was making losses, could be a potential acquirer in the future, but it was not fit to merge with a smaller bank at the moment, the official said.  The bank suffered a net loss for the two consecutive years of 2015-16 and 2016-17, though the loss came down to Rs 6,089 crore from Rs 1,558 crore over this period. 

Punjab National Bank and Syndicate Bank were not part of discussions for consolidation, he added.

Candidates for bank consolidation are being chosen on the basis of their financial health, non-performing assets, geographical base, and human resource and technological integration.

“We cannot look at balance sheets alone. We need to see the position of their bad loans. We need to create strengths as otherwise the capital requirement will go up significantly,” said another official.

An important consideration is that the stressed assets of a bank up for acquisition should not burden the stronger bank. State-owned banks are struggling with over Rs 6 lakh crore of NPAs.

“The objective is that the entity that will emerge should be strong enough to bear a future shock,” the official said. Consolidation could involve merger of one or even two small banks with a big one, he added.

Finance Minister Arun Jaitley had said on Monday the issue of bank consolidation was being actively considered.

Public sector banks made operating profits of Rs 1.5 lakh crore in 2016-17, but their net profit was Rs 574 crore due to various provisioning requirements.

Officials said the decision to merge would be left to banks. "The banks will look at various issues, including operating synergies. The government will not interfere in that process," a third official said. He added there would be rationalisation of branches, however, there would be no job losses. 

Next phase of PSB Consolidation

* Six-seven banks being considered for the exercise

* Bank of Baroda and Canara Bank likely top contenders

* Smaller banks to be merged might include Dena Bank, Vijaya Bank, UCO Bank and United Bank of India

* Bank of India, which is still making losses, could be considered in future

* Punjab National Bank and Syndicate Bank not in discussion at the moment