Merger Of Four Loss-Making PSU Banks On The Cards

To order to bring in efficiency in the functioning of loss-making public sector banks (PSBs), the government is considering merging at least four such banks because of rising bad loans.

- Saikat Neogi

The four banks are Oriental Bank of Commerce, Bank of Baroda, Central Bank and IDBI Bank with a combined loss of Rs 21,646 crore in FY18. In fact, barring Bank of Baroda, all the three banks are under Reserve Bank of India's Prompt Corrective Action, a mechanism to maintain sound financial health of the banks. If any bank comes under the RBI's Prompt Corrective Action, it cannot distribute dividends, remit profits and disburse fresh loans. Between the four banks, their gross bad loans or non-performing assets add up to nearly Rs 1,75,000 crore. Even Bank of Baroda, which is not under RBI's Prompt Corrective Action, made a loss of Rs 3,342 crore in March 2018. Also, IDBI Bank has a gross NPA of over Rs. 55,000 crores at last count, which constitute 28 percent of its total advances. This means more than one rupee in four lent has gone sour. Now there are talks that Life Insurance Corporation of India (LIC) will take 30 percent stake in IDBI Bank. At present, LIC has 16 percent stake in IDBI Bank. The Insurance Regulatory and Development Authority allows insurers with assets exceeding Rs 2.5 lakh crore to buy up to 15 percent equity in a company. Under special provisions, LIC can hold up to 30% stake in a company with approvals from the government, the investment committee and the regulator.