Page 22 - Banking Finance May 2020

ARTICLE

and stressed loan strategy etc. The two other large PSBs - already clarified that there won't be any job losses. However,
Bank of Baroda and IDBI Bank Ltd - have challenges of their while banks say branches are unlikely to close right away,
own. The Bank of Baroda, which merged Dena Bank and there will be some overlap and therefore some restructuring
Vijaya Bank into itself, has seen the complete exit of will happen in due course. For instance, Indian Bank's MD
leadership, which was hired to create a template for other and CEO Padmaja Chunduru had said that 150-200 branches
PSBs to follow. Similarly, the new promoter LIC in IDBI Bank that had been identified would either be merged or their
has pumped in capital of over Rs 35,000 crore to revive the location shifted.
bank.
This mega merger of PSU banks came into effect at a time
The latest set of mergers will change the pecking order the country is in a 21-day lockdown to control the spread of
among the country's nationalised banks and give many of COVID-19 outbreak with no ruling out of a further extension
them a wider geographical reach and make balance sheets and banks are functioning with limited manpower and
stronger. shorter working hours than normal.

Half a dozen weak banks under RBI's PCA
For instance, PNB become the second largest state-owned
bank with over 11,000 branches, 13,000 plus ATMs and a A dozen banks were under the RBI's prompt corrective
business mix of over Rs 16 lakh crore. There will be over 1 action (PCA) but half of them released because of merger
lakh employees in the merged entity. of PSBs and the additional capital provided by the
government. There hasn't been any material improvement
Canara Bank became India's fourth largest public sector in their profitability or NPAs to send them out of PCA. In fact,
bank. Post amalgamation of Syndicate Bank, Canara Bank half a dozen banks are still very weak to restart the lending
will have a network of 10,391 branches, 12,829 ATMs and business. IDBI Bank, Indian Overseas Bank, UCO Bank,
a business size of over Rs 16 lakh crore. The staff strength Central Bank of India and Laxmi Vilas Bank are currently
will now go up to 91,685 employees. under the RBI's monitoring with restricted lending.

Union Bank became the fifth largest nationalized bank, with Private sector banks not out of the woods
over 9,600 branches and a business of Rs 14.59 lakh crore. For long it was PSBs that shared all the blame for poor
Indian Bank, with a combined branch network of 6,060 corporate governance and leadership, but now private
branches and 2,870 ATMs, and a business of Rs 8.08 lakh sector's weak links are also exposed. Chanda Kochhar and
crore became the seventh largest state-owned lender. Rana Kapoor came under the scanner of investigating
agencies for corruption charges or violating the service
Merger of such huge scale is bound to have some impact rules. Similarly, the growing NPAs in their book showed the
on the network and employees. The government had bad lending practices. Currently, the leadership at large
private banks is stabilising with a new strategy in place. The
largest private bank, the HDFC Bank, will see a leadership
transition by the year-end whereas in IndusInd Bank, Sumant
Kathpalia has taken over from Romesh Sobti as the MD &
CEO by the month-end. Many private banks are in the
process of capital raising. In fact, the equity dilution will be
higher now as their valuation has fallen big time over the
last one month.

Loss of trust in the banking entities
For the first time in many decades, a private sector bank
saw a moratorium being imposed by the RBI. A moratorium
by the regulator is the last resort as PCA framework is
available to nurse the bank back on health. Yes Bank's

22 | 2020 | MAY | BANKING FINANCE