If believe on the recent reports by leading fiancial newspapers, there are few Public Sector Banks, which could be merged by end of this financial year or earlier. Finance Ministry has called all banks under PCA for review meeting and setting up performance metrices under reform agenda program EASE (Enhanced Access and Service Excellence), which focuses on six themes including customer responsiveness, responsible banking, credit offtake, PSBs as Udyami Mitra, deepening financial inclusion and digitalisation.
RBI has placed eleven Public Sector Banks under Prompt Corrective Action (PCA) due to higher Non Performing Assets and negative Return on Assets (RoA). These eleven banks are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.
Rules of Bank Merger Under PCA
As per the revised PCA guidelines released last year, if a bank enters ‘Risk Threshold 3’, it may be a candidate for amalgamation, reconstruction or even be wound up or merged.
Among the many metrics that are used to gauge how weak a lender is are capital, net NPAs, RoA and Tier 1 leverage ratio etc.
Under the PCA, banks face restrictions on distributing dividends and remitting profits. The owner may be asked to infuse capital into the lender.
Bank under PCA would also be stopped from expanding their branch networks. It would need to maintain higher provisions and management compensation and directors’ fees would be capped.
Out of these elevan banks, such banks, which donot show any sign of improvement under PCA may be released for merger.