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Journalism of Courage
Bankers sounded optimistic on the government’s move to go in for amalgamation of three public sector lenders, Bank of Baroda, Dena Bank and Vijaya Bank, while arguing for more mergers to bring troubled state-owned banks back on the rails. But, the sceptics among them are, however, keeping their fingers crossed as the government has not yet implemented the merger of three public sector insurance companies announced in the Budget 2018.
Former Indian Overseas Bank chairman and managing director M Narendra said, “Consolidation is good for the PSU banking sector. Their combined synergies will take the merged entity forward. It will strengthen their performance.” “The government seems to have selected a big bank (BoB), weak bank (Dena Bank) and a comparatively stable, small player (Vijaya Bank) for the merger. It looks like a good strategy,” said a senior official of a PSB.
According to former Corporation Bank CMD Ramnath Pradeep, BoB and Dena Bank have a strong presence in Gujarat and they have lot of synergies. “BoB is a strong bank. Dena Bank is also strong in Maharashtra and part of Chhattisgarh. The duplication of work can be avoided. Vijaya Bank is strong in South. Their accounts can be easily merged. There is no problem on the technology side as well,” Pradeep said.
Experts, however, hoped that the bank merger doesn’t end up like the proposed merger of three insurance firms — United India Insurance, National Insurance and Oriental Insurance. “Trust the bank merger proposal will not be dragged on indefinitely. It’s disappointing to see that the proposal to merge three insurance firm doesn’t seem to have taken off,” said K K Srinivasan, former member, Insurance Regulatory and Development Authority of India.
Public sector banks have been reeling under huge non-performing assets in the last three years. In FY18, the banking system reported a net loss of Rs 40,000 crore because of the sharp rise in NPAs and the resulting increase in provisioning costs. In the previous fiscal, as much as Rs 5 lakh crore of bank loans slipped into the NPAs category, taking the total slippages in the past three fiscals to Rs 13.6 lakh crore, Crisil had said. In June, the RBI’s Financial Stability Report (FSR) warned that “the stress in the banking sector continues as gross NPA ratio rises further. Profitability of banks declined, partly reflecting increased provisioning”. RBI’s macro-stress tests indicated that under the baseline scenario of current macroeconomic outlook, gross NPA ratio of banks may rise from 11.6 per cent in March 2018 to 12.2 per cent by March 2019. Nearly a dozen PSU banks are under the prompt corrective action of the RBI.
According to senior bankers, it’s to be seen whether the bank employees unions will accept the government’s merger proposal. The merger of associate banks of SBI with SBI was relatively a smooth affair despite opposition from bank unions.
On the bad loan front, Pradeep said, “BoB is under control. Vijaya Bank is also stable. Dena Bank is weak. After the merger, the consolidated entity is likely to be stable.” The combined gross NPAs of the three banks are Rs 79,319 crore, advances Rs 6.4 lakh crore and deposits Rs 8.4 lakh crore.
Dena Bank had reported net losses to Rs 721.71 crore for the first quarter ended June of the current fiscal against a net loss of Rs 132.65 crore in the April-June period of last fiscal, 2017-18. Its gross NPAs as a percentage of gross loans, spiked to 22.69 percent as of June 2018 compared with 17.37 percent a year ago. In value terms, they mounted to Rs 15,866.11 crore, up from Rs 12,994.16 crore.
Bank of Baroda reported a more than two-fold jump in net profit at Rs 528.26 crore for the first quarter of 2018-19, against a net profit of Rs 203.39 crore a year ago. Its gross NPAs in value terms dropped to Rs 55,874.81 crore at June-end this year from Rs 56,480.39 crore at end-March, but were up compared to Rs 46,172.77 crore at the end of June 2017.
Vijaya Bank posted a 43.3 per cent decline in net profit at Rs 144.34 crore for June quarter even though NPA ratio improved. In absolute terms, gross NPAs however rose to Rs 7,579.11 crore as on June 30, 2018 against Rs 6,812.21 crore a year ago.
AIBEA opposes govt decision
Mumbai: Opposing the government move, C H Venkatachalam, general secretary, All India Bank Employees Association (AIBEA), said: “What is needed is tough measures to recover the bad loans. Already, the government’s policy of Insolvency and Bankruptcy Code to resolve NPAs is resulting in huge haircuts for the banks. Scams like Kingfisher, Nirav Modi and Winsome Diamonds are on the surface rocking the banks.”
