New board to review public sector banks, recommend mergers

The proposal to consolidate state-owned banks is back on the drawing board. This will be undertaken by the public sector bank board, which will be set up in the next few months.

The proposal to consolidate state-owned banks is back on the drawing board. This will be undertaken by the public sector bank board, which will be set up in the next few months.

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With the government showing reluctance in providing financial support to state-owned banks that have failed to show significant growth in their businesses, many “weaker” banks may be forced to look at mergers.

The setting up of the board was proposed by finance minister Arun Jaitley in this year’s Union Budget. The board, once set up, would act as an independent consultant and identify the banks with the right synergies that could be merged.

“The issue is being looked at though there is nothing concrete at this stage, the bank board, which would be independent and part time in nature, once set up would look at the consolidation exercise in the banking space,” a senior government official, who did not wish to be identified, told HT.

Andhra Bank, Bank of Maharashtra and United Bank of India (UBI), all of which have comparatively less assets, may be among the banks that may be forced to look at a merger.

UBI has a market capitalisation of Rs 1,815.7 crore and a gross non-performing asset – loans that do not yield returns – ratio of 9.49%.

Bank of Maharashtra, which has a market capitalisation of Rs 3,997.6 crore has a gross NPA ratio of 6.33% and Andhra Bank, with a market capitalisation of Rs 4,217 crore has a gross NPA ratio of 5.31%.

Gross NPAs of all public sector banks stood at 5.17% as of March 2015.