The Government of India is considering another mega bank merger in India. This time government is planning to merge four more PSU (Public Sector Undertaking) Banks. These banks are Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India. If the plan goes through, the merged banks’ entity will become the second largest bank in India; after State Bank of India. The total asset value of the new entity will be INR 16.58 trillion.
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Another Mega Bank Merger in India, Why?
With this mega bank merger, Government of India expects to get help in stopping the enhance in bad loans. Also, the merger will let the weak banks sell assets, reduce overhead expenses and close the branches which are in lose.
There is also news that the department of financial services, under the Finance Ministry is also looking forward to sell out 51% stake of IDBI Bank Ltd to a strategic partner for INR 9,000.00-10,000.00 Crore. By selling out the government stake to private equity investors, dilution of Government stake could also be achieved.
Finance Minister, Arun Jaitley says that this merger will help in the creation of strong and competitive banks in public sector. So that the upcoming strong & competitive banks can meet the credit needs of a growing economy and can absorb shocks. The new entity of merged banks will be capable enough to raise resources independently without depending unduly on the state exchequer.
Into which bank all these four banks will merge as a result of Mega Bank Merger?
As a result of mega bank merger in India, the four merging banks will merge into Bank of Baroda and will be known as Bank of Baroda as a whole. This is because Bank of Baroda is the only bank out of these four banks which is not under RBI’s Prompt Corrective Action (PCA) framework.
What is PCA Framework?
The PCA framework is a mechanism to maintain the sound financial health of the banks. The banks which are under PCA Framework, cannot
- distribute dividends,
- remit profits
- disburse fresh loans
- expand their branch networks