India makes headway with public bank mergers

India is reportedly aiming to merge Punjab National Bank with up to three other banks.

Reuters reports that India's consolidation plans for the debt-ridden public banking sector is making headway with Punjab National Bank (PNB) said to be looking to merge with two or three state banks that could include Oriental Bank Of Commerce, Andhra Bank and Allahabad Bank.

The proposal to merge PNB could be one of the first decisions taken by the new government.

Also read: India to close a third of overseas public sector bank branches

Banking sector reform is unfinished business from the last five year term of prime minister Narendra Modi's government as banks struggle under a huge debt pile than of more than $130b (INR9t), or nearly 5% of the nation’s gross domestic output.

Currently, there are 20 state-run banks following earlier mergers like State Bank of India and Bank of Baroda, and the take-over of IDBI Bank taken by state-run Life Insurance Corporation.

Also read: Will India see more small bank acquisitions?

As part of efforts to bring the faltering banking sector back on its feet, the government has injected about $36b to bail out the banks in the last five years and introduced new bankruptcy resolution rules in 2016. However, only about 5% of the stressed assets of banks have so far been dealt with through the bankruptcy process.

Moreover, a report by Fitch notes that banks still need an additional $32b to meet regulatory norms under Basel III capital standards that leaves surplus capital for growth.

Here's more from Reuters:

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