Due to low valuations and mounting stressed assets amid the COVID 19 crisis, privatization of any public sector bank (PSB) is doubtful during the current fiscal. Under the Reserve Bank of India’s Prompt Corrective Actions (PCA) framework, there are four banks currently. Lending, management compensation, and directors’ fees are some of the restrictions on these four banks.
The banks are Central Bank of India, United Bank of India, Indian Overseas Bank (IOB), and UCO Bank. As any suitor will not be there for them from the private banking space, it does not make any good business move to sell four banks, said the source. From the distress sale of their entities, especially if they are in strategic sectors the government will hold back.
The current pandemic situation had not only stopped the process of recovery of PSBs but the financial health of private sector banks will get adversely affected too.
Due to consecutive capital infusions for meeting compulsory regulatory ratios, government stakes in some PSBs have gone past 75 percent. The process of consolidation of PSBs from the last few years have been followed by the government. Positive about the stronger financial health of the PSBs, finance minister Nirmala Sitharaman did not announce any capital infusion for PSBs in budget 2020-21. The process of consolidation had started in 2008 with the merger of State Bank of Saurashtra with the State Bank of India. Later in 2010 State Bank of Indore was merged with the State Bank of India.
State Bank of India again merged its leftover five subsidiaries that are State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore, State Bank of Hyderabad along with Bhartiya Mahila Bank (BMB) in April 2017 after the gap of over six years. To make the third-largest lender of the nation, in the first three-way amalgamation, from 1st April 2019 Vijaya Bank and Dena Bank were merged with the Bank of Baroda.
According to the consolidation plan, Syndicate Bank was merged into Canara Bank, Allahabad Bank into Indian Bank, Andhra Bank and Corporation Bank into Union Bank of India and United Bank of India and Oriental Bank of Commerce into Punjab National Bank. Currently, there are 7 large public sector banks and 5 smaller ones. In 2017, there were 27 PSBs.
