Weaker banks to merge with stronger banks

By agencies   |   Friday, 16 September 2005, 07:00 Hrs
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NEW DELHI: Two years after the government merged the Global Trust Bank with Oriental Bank of Commerce, the government has now decided to merge small and weaker public banks with stronger banks, a paper reported.

Senior government officials, while it is true that some of the weak banks like Allahabad Bank and United Bank of India have raised capital and have shored up their capital adequacy ratio, they continue to remain at the bottom of the league in terms of their overall financial health, the Financial Express reported.

The officials said that implementation of the stringent Basel II norms will pull down the capital adequacy ratio of most banks by 3 percent. The weaker banks would be the worst affected. Interestingly, except for Punjab & Sind Bank, no other weak bank has been recapitalized. P&SB was racapitalized to the tune of 5 billion in the current financial year.

Quoting the officers, the paper said the finance ministry has not received any formal merger proposal from any of these banks. Speculation is rife over the possible merger of Bank of Baroda with Dena Bank, of Indian Bank with Indian Overseas Bank and of Union Bank of India with Bank of India.

“If we find the proposals feasible, we would give the go-ahead signal,” the official said, adding the ministry would not initiate any merger process. Allahabad Bank, Indian Bank and United Bank of India have affected a turnaround during the last 3-4 years, but they continue to be the stragglers.

The officials said the government would keep building pressure on the banks to consolidate in order to create bigger and stronger entities, which can face global competition. Finance minister P Chidambaram had recently asked strong banks, including State Bank of India, Punjab National Bank and Bank of India to take the lead in driving consolidation, the paper said.

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