India unveils series of state-run bank mergers to revive debt-ridden sector

From 27, the total number of government-owned banks will be cut to 12.

Reuters reports that the Indian government has unveiled a series of mergers involving 10 state-owned banks in a move that will reduce the number of state-owned banks from 27 in 2017 to 12. 

Also read: The full-fledged recovery of India's banks hinges on privatisation and mergers

Sitharaman said Oriental Bank of Commerce and United Bank would be merged with New Delhi-based Punjab National Bank to create India’s second largest lender after State Bank of India.

Canara Bank and Syndicate Bank would be amalgamated; Andhra Bank and Corporation Bank are to merge with Union Bank, whilst Indian Bank will merge with Allahabad Bank.

Also read: India's ailing banking sector sparks call for privatisation

The ten banks will also receive funds as part of the government's latest cash infusion. Over the last five years, the government has injected roughly $500.38m (INR36b) of taxpayers' money into state-owned banks.

In September 2018, the Finance Ministry announced the consolidation of Vijaya Bank, Dena Bank and Bank of Baroda (BOB) into the country’s third largest lender with a market share of around 6.8% by loans.

Government lenders hold an estimated 91% of the banking sector’s nonperforming loans. “Mergers amongst the PSBs would be credit positive for them because they would give scale efficiencies to the remaining enlarged banks. They would also help improve corporate governance,” Moody’s said in an earlier report. 

PSBs have incurred a massive $3.81b loss owing to fraud in the financial year 2017-18, according to a Right to Information reply, with PNB accounting for the lion's share of losses after diamond merchants took off with $2b in fraudulent loans. In Q1, PSBs also booked over $9b in losses due to the central bank's tighter nonperforming loan rules.

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