You are here: Home » Economy & Policy » News
Business Standard

Public sector banks in turmoil after mega merger: Parliament panel

Flags their low market valuations, says it'll hinder plans to raise equity

public sector banks | Parliament | market valuation

Nikunj Ohri  |  New Delhi 

parliament panel
Illustration: Binay Sinha

The mega merger of (PSBs) has led to a “turmoil” as the state-owned banks do not have the necessary talent for specialised functions like risk management and new financial technologies, the Parliamentary Standing Committee on Finance said in its report.

“PSBs are also going through considerable turmoil because of the mega mergers; this will require even closer assessment of human resources to ensure that sufficient management talent is available for the PSBs as they seek to streamline and expand their operations,” according to the report of the committee, chaired by BJP MP Jayant Sinha.

From April 1, 2020, ten PSBs were amalgamated into four, taking the total number to 12.

After the merger exercise, Punjab National Bank, Oriental Bank of Commerce, and United Bank of India combined to form one lender; Canara Bank took over Syndicate Bank; while Union Bank of India amalgamated with Andhra Bank and Corporation Bank. Indian Bank subsumed Allahabad Bank.

With the new privatisation policy announced in the Budget, the government has announced that four broad sectors, including banks, will have “bare minimum” government presence with the remaining being privatised, merged or subsidiarised with other CPSEs.

The panel also said the government should fully clarify the functioning of the Banks Board Bureau (BBB), and the BBB should assist PSBs in acquiring and retaining such specialised talent.

Strengthen PSB competitiveness

The parliamentary panel also raised concerns on the “depressed” market valuations of state banks.

“PSBs continue to have very low price-book multiples and their market valuations remain depressed. The committee notes that the PSBs do not appear to have differentiated strategies that will enable them to compete effectively,” said the report.

Apart from the mega mergers, the Department of Financial Services should also prepare a comprehensive plan on how to strengthen PSB competitiveness, the report said. Low valuations imply that banks will find it difficult to raise equity through the markets, it said.

As a result, if NPAs increase yet again due to adverse global trends, significant funding will be required from the government to keep PSBs appropriately capitalised.

On this observation, the government replied that it has adopted a measures to reform PSBs, and strengthen their competitiveness, which include industry-linked improvement in turnaround time, digital banking services, competitive pricing, customer-need driven marketing strategy and reach, prudential lending and effective loan life-cycle management.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Wed, February 03 2021. 23:08 IST