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PSU bank merger urgency

New Delhi, Jan. 6: Finance minister P. Chidambaram is likely to urge state-run lenders to explore the possibility of mergers among themselves in his pre-budget meeting with bankers tomorrow.

Consolidation will not only create a stronger banking network but will also reduce the government’s recapitalisation burden.

“The government remains committed to infusing more capital into public sector banks, however, mergers creating large banks will have easier access to equity finance and increase the lender’s ability to raise external equity, reducing its dependence on the government,” sources said.

They added that the Centre wanted to act only as a facilitator in any consolidation and expected banks “to express the desire to merge and find their own partners”.

The government has agreed to infuse Rs 15,000 crore in PSU banks before March-end. However, analysts said the worsening fiscal and capital account deficits might constrain the Centre.

Chidambaram had emphasised that “there is a case for merger of banks and there is a case for two or three world-size banks”.

Bankers said discussions had been held on consolidation among the State Bank of India, Bank of India and Bank of Baroda to create a strong global bank. However, disagreement among the parties and the absence of a concrete plan had spoiled the plan.

Between 1990 and 2000, the banking sector witnessed around a dozen mergers between lenders with weak financials. In the past 10 years, more than 15 consolidations have taken place among healthy banks because of commercial reasons.

The acquisition of the Centurion Bank of Punjab by HDFC Bank in 2008 for Rs 9,510 crore was the biggest merger in domestic banking.

The government has cleared a Rs 3,004-crore fund infusion in the SBI this fiscal, while the Union Bank of India expects around Rs 1,000 crore. Calcutta-based Uco Bank has sought Rs 800 crore to fund growth and boost capital adequacy ratio.

The RBI has estimated that public sector banks will need common equity amounting to Rs 1.4-1.5 lakh crore on top of internal accruals and Rs 2.65-2.75 lakh crore in the form of non-equity capital to implement Basel III norms by 2018.

Capital infusion by the government will shore up the equity base of banks and enable them to lend more to productive sectors such as agriculture and infrastructure. It will also help banks to implement the Basel guidelines.

The government has injected about Rs 32,000 crore in PSU banks in the previous two fiscals.

During 2011-12, state-run lenders got Rs 12,000 crore to improve their capital adequacy ratio.

 
 
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