Govt likely to merge IDBI, Central Bank, OBC, BoB
MEGA MERGER Entity would be the second largest bank in the country after SBI MUMBAI/NEW DELHI:
The government is considering merging at least four state-run banks, including Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India, two people with direct knowledge of the development said.
If the plan goes through, the merged entity will become the second largest bank in the country after State Bank of India, with combined assets of ₹16.58 lakh crore.
With the merger of state-run banks, the government hopes to help stem the rise in bad loans in their books at a time when poor asset quality has crippled the lending ability of some of them. The merger will also allow the weak banks to sell assets, reduce overheads and shut money-losing branches.
The department of financial services, under the finance ministry, is also considering a 51% stake sale in IDBI Bank to a strategic partner, for ₹9,000-10,000 crore, the people said on condition of anonymity.
“Dilution of (government) stake in IDBI Bank could also be achieved through stake sale to private equity investors,” said one of the two people cited above.
Queries emailed to IDBI Bank, Bank of Baroda, Oriental Bank of Commerce and Central Bank of India did not elicit any response.
On May 21, IDBI Bank told the exchanges in a regulatory filling that a special resolution will be placed for further issue of capital at its board meeting of May 25. On the following day, IDBI Bank furexposure ther informed the exchanges about a scrutinizer report for an increase in the bank’s authorised capital from the existing ₹4,500 crore to ₹8,000 crore.
The increase in authorized capital could facilitate the sale of a stake of 51% or more, in the form of preferential issues to another investor. Government officials declined to comment, citing that the matter may be highly market sensitive.
According to the Securities and Exchange Board of India’s capital raising norms, the bank’s stock price has to be at least ₹71.84 per share before it can opt for a preferential issue, said the second person.
In a preferential issue, according to Sebi rules, shares are allotted at a price that is not less than higher of-- the average of the weekly high and low of the volume weighted average price of the stock. during the past 26 weeks; or the average of the weekly high and low of the volume weighted average prices of the stock during the preceding two weeks.
If any preferential issue is done to less than five qualified institutional buyers the price of the share has to be not less than the average of the weekly high and low of the volume weighted average prices of the stock during the preceding two weeks.
In his 2016 budget speech, finance minister Arun Jaitley said that the government was considering reducing its stake in IDBI Bank to less than 50%.
In a bold move, the government had announced the merger of State Bank of India with five of its associate banks and Bharatiya Mahila Bank in April 2017. Subsequently, on June 5 last year, Jaitley had said that his ministry was examining the possibility of further consolidation in the public sector banking space, without waiting for their finances to improve.
IDBI Bank, which has a large to the real estate segment, posted net loss of ₹8,237.92 crore in the year ended March 31, 2018. Its net losses were at ₹5,158 crore and ₹3,665 crore in FY17 and FY16, respectively. During FY18, the bank’s gross NPAs had also almost doubled to ₹55,588.26 crore, which is 32.36% of its gross advances during the fiscal year.
On May 23, IDBI Bank passed a resolution in a postal ballot to issue up to 1.1 billion equity shares at an issue price of ₹71.82 per share, aggregating up to ₹7,881 crore. The bank’s proposal to increase the authorised share capital and consequent amendment to the MoA and AoA was criticized by IiAS, a proxy advisory firm.
In a April 30 report, IiAS had said that such a resolution is an indication of poor corporate governance practices or non-compliance with the regulations. It had also said that such a move also meant an inequitable treatment for shareholders, as it will benefit only the controlling shareholders at the expense of the public shareholders. The four state-run banks being proposed to be merged are reeling somewhat under similar pressure. During FY18, the combined net losses of IDBI, BoB, OBC and CBI stood at ₹21,646.38 crore.
The government’s proposed merger move is also in line with the stance taken by the Reserve Bank of India. In April 2017, RBI governor Urjit Patel had said that the Indian banking system could be better off if some public sector banks were consolidated to have fewer, but healthier entities, as it would help in dealing with the problem of stressed assets.