India mulls consolidation of state banks

Bank of Baroda and Canara Bank may absorb smaller lenders.

The Indian government is resuming discussions on public sector bank consolidation with larger players like Bank of Baroda, Canara bank and Union Bank of India considered as possibly absorbing smaller players in a bid to simplify the retail banking network.

Lenders like IDBI Bank and Dena Bank are amongst those being eyed for a possible merger, sources told Times of India, although nothing has been finalised so far.

"The government will try to clean up things at IDBI Bank despite it being an election year. It can be through strategic sale or a merger," said the source.

Although banking consolidation has been earlier broached by the Modi government, plans to simplify the state banking network were put on hold as the more pressing problem of the banking sector’s bad loan problem came to light.

“The Indian banking sector has traditionally not been aggressive in recognising and impairing stressed assets, and deteriorating asset quality in sectors like steel, construction and infrastructure remain to be fully addressed,” accounting firm Deloitte noted in an earlier report.

Also read: India's public banks hammered by massive $3.81b fraud loss in 2017-18

The gross non performing assets (NPAs) of the banking sector continue to rise after peaking at 10.14% in March after moderating from 9.04% in June 2017 to 8.93% in September 2017, according to CARE Ratings.

Photo from Kabi1990 - Own work, CC BY-SA 3.0