The government of India is considering merging of at least four public sector leading banks, including Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India.
If this proposal is finalized, the merged entity will become the second-largest bank in the country after State Bank of India, with combined assets of Rs 16.58 trillion.
On several occasions, Finance minister Arun Jaitley has said that India needs 5-6 banks of global size and scale and further consolidation in the banking sector will be done at the appropriate time.
This proposal will replicate the success of likewise SBI merger with other government banks and will help the government achieve its goal of creating 4-5 global-sized banks in the country.
The merger will further help the govt to get rid of toxic loans and also help stop the growth of bad loans in their records at a time when poor asset quality has already weakened the lending ability of some of banks. Bank of Baroda and other three state-run banks that are proposed to be merged are under pressure for showing a combined loss of RS 21,646.38 crore by the financial year end.
“The Indian banking system could be better off if some public sector banks were consolidated to have fewer, but healthier entities, as it would help in dealing with the problem of stressed assets,” said RBI governor Urjit Patel.
The department of financial services, under the finance ministry, is also simultaneously considering a 51% stake sale in IDBI Bank to a strategic partner, for RS 9,000-10,000 crore.
According to reports Dilution of (government) stake in IDBI Bank could also be achieved through stake sale to private equity investors.
The government had merged SBI with five of its associate banks and Bharatiya Mahila Bank in April 2017. This was the similar kind of proposal which government is considering again.