FM announces merger of Public Sector Banks

FM announces merger of Public Sector Banks
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FM announces merger of Public Sector Banks

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FM Nirmala Sitharaman today, on 30th Aug 2019, announced a merger of 10 Public sector banks into 4 entities. Along with that there was an announcement of capital infusion and management revival for the better operations of the banks. The revival of the PSU banks was a necessity in the current economy especially with the increasing NAPs of the PSU Banks.

Which Banks will merge together?

The following banks will merge together into a separate entity:

  1. PNB, OBC & United Bank will merger in one entity
  2. Canara Bank and Syndicate Bank will merger in one entity
  3. Union Bank, Andhra Bank and Corporation Bank will merger in one entity
  4. Indian Bank and Allahabad Bank will merger in one entity.

The Bank of India and Central Bank will remain as it is.

The effective date of the merger is not yet announced.

Repositioning PSUs to $5 Trillion Economy

The government wants to ensure that post this consolidation the banks financially stronger. For this, the government will be revitalizing them with the capital requirements. The table below mentions the recapitalization roadmap planned by the government.

Bank

Amount

(Rs. in crores)

Punjab National Bank16,000
Union Bank of India11,700
Bank of Baroda7,000
Canara Bank6,500
Indian Bank2,500
Indian Overseas Bank3,800
Central Bank of India3,300
UCO Bank2,100
United Bank of India1,600
Punjab & Sind Bank750
TOTAL55,250

Governance reforms to make PSUs Gen Next banks

Apart from these government reforms, the announcement has also been made about how the banks will operate going forward. The government wants to aim towards making the PSU banks to GenNext banks with technological advancement, professional attitude as well as enough management powers. Some of the important governance reforms include:

  • Making management accountable to the Board. Like appraising the performance of GM level and above including MDs
  • The board to develop the career plan for all senior positions;
  • To recruit Chief Risk Officer from market
  • Chief Risk Officer will be adequately empowered to decide on matters & Act.
  • Flexibility is given for enhancement of sitting fees
  • Strengthening Board Committee system.
  • Enhancing the effectiveness of Non-Official Directors (NODs)
  • Creation of Leadership pipeline

 

The article is compiled by CA Janhavi Phadnis. If you have any queries concerning the above article. Please write to us either in the comments section below or email the author on info.financepost@gmail.com.

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CA Janhavi Phadnis