Centre mulls merger of PNB, Union Bank and Bank of India

The central government is planning to invite selected lenders for another round of merger in public sector banks (PSBs). The lenders that may be called for proposed round 2 of PSB merger include Punjab National Bank (PNB), Union Bank of India and Bank of India (BoI). If the finance ministry goes ahead with the plans, this would be the second merger this year after the centre merged Bank of Baroda, Vijaya Bank and Dena Bank. Starting this financial year, both Vijaya and Dena were amalgamated with the Bank of Baroda.

The Economic Times reported that the activity would take place in the second or third quarter of the current financial year. "We wouldn't like to wait for too long," said a finance ministry official. He further added that the government will amalgamate these banks through an alternate mechanism if the banks are not able to give options.

"If the banks are not able to give options then the alternate mechanism (AM) group can make suggestions," he added. Notably, the three banks that merged earlier -- Bank of Baroda, Vijaya Bank and Dena Bank -- had done so through the alternate mechanism (AM). "It need not be a tripartite merger again. We will be looking at various combinations. It has to be organic, besides we will like some of these large banks to further consolidate their balance sheets in the first two quarters," he went on to add. 

However, there were also some counter-voices in the finance ministry against the proposed merger. It was argued that the timing is not perfect for the publicly owned banks. One of the other officials said: "Bank of India has just come out of the Reserve Bank of India's PCA (prompt corrective action) framework. Union Bank of India and Punjab National Bank are also in the early recovery stage." It is to be noted that in February, the Reserve Bank of India (RBI) slapped PCA framework on Bank of India, Oriental Bank of Commerce and Bank of Maharashtra for not complying with the banking norms. PCA framework meant the imposed lending restrictions on financially weak banks.

Fear of job losses

The General Secretary of the All India Bank Employees Association (AIBEA) had earlier highlighted the fear of job loss due to the consolidation of banks merged on April 1. "Firstly, there is no evidence that the merger of banks would strengthen the banks or make it more efficient," he said. "Post amalgamation of the State Bank of India (SBI), no miracle has happened and it has resulted in the closure of branches, increase in bad loans, a reduction of staff and a reduction in business. For the first time in 200 years, SBI has gone into the loss," he added.