Rising bad debts has been a cause of concern, realizing which the government has reportedly been considering a plan to merge at least four public sector banks – Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India. The move aims to turnaround the banking industry which has been suffering from high non-performing assets crippling the credit growth of the country. The merged entity could be the second largest entity after State Bank of India with total assets of Rs 16.58 lakh crore. The four banks have combined net loss of more than Rs 21,000 crore as on March 31. Also Read - Good News For Jan Dhan Account Holders: No Charges to be Levied by Banks for Debit
With the merger of four banks, the government plans to cut losses and close the loss-making branches so that financial health of these banks could be improved. Statistics reveal public sector banks have a very high level of bad debts compared with private sector banks. Gross NPAs for public sector banks as a percentage of total advances was at 13.5 per cent in September 2017. Private sector banks have NPA of less than 4 per cent, clearly indicating the bad health of state-owned banks. Also Read - Home Loan Interest Rates Hit 15-year Low: SBI, Bank of Baroda, HDFC Bank Launch Festive Offers
According to reports, the government is also considering to sell its 51 per cent stake in the company to the strategic partner for worth Rs 8,000 to Rs 10,000 crore. State-run IDBI Bank reported net losses of Rs 5,663 crore in the fourth quarter of 2018 due to higher provisioning for bad loans. Also Read - Mega Bank Mergers Working Smoothly Amid COVID-19: AIBEA
The bank reported a net loss of Rs 3,200 crore in the year-ago period. For the full year, the bank reported a net loss of Rs 8,238 crore compared with Rs 5,158 crore in FY17.
“I can announce very well today, which I was not able to announce earlier, that most of the legacy issues on asset quality have been recognised and there is an increase in provision coverage ratio,” said the bank’s managing director and CEO, M K Jain.
With inputs from PTI