India zeroes in on new bank merger candidates

Punjab National Bank, Union Bank of India and Bank of India are possible targets.

The government is likely to extend an invitation to selected public sector banks which may include scandal-hit Punjab National Bank, Union Bank of India and Bank of India, for the second round of consolidation in the battered financial services industry, reports Economic Times of India.

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“We wouldn’t like to wait for too long,” the finance ministry official told The Economic Times, indicating that some merger activity is on the cards around second or third quarter of the current fiscal year. “If the banks are not able to give options then the alternate mechanism (AM) group can make suggestions.”

The merger need not be tripartite in nature, the minister said, referring to the earlier merger of Bank of Baroda, Vijaya Bank and Dena Bank which will create the country's third biggest bank with a market share of 6.8% in loans.

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“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,” credit rating agency Moody’s said in an earlier report.

India is home to around 21 PSBs that hold around two-thirds of the country’s banking assets but also bears the brunt of the bad loan problem with government lenders holding an estimated 91% of the banking sector’s nonperforming loans.

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