Enthused by the success of SBI merger, the government is reportedly mulling another mega bank merger. As per a report, the government is planning to merge Bank of Baroda, IDBI Bank, Oriental Bank and Central Bank. These four banks had reported a combined loss of Rs 21,646.38 crore in the year ended 31 March.
In March last year, PTI quoting finance ministry officials, reported that the government want to create 4-5 global sized lenders.
The government had merged five associate banks and Bharatiya Mahila Bank with SBI on April 1, 2017, to catapulte the country’s largest lender to among the top 50 banks in the world.
And if the new plan goes through, it will create India’s second largest bank after State Bank of India with a combined asset of Rs 16.58 trillion, added the report.
A prime reason for creating large banks is to address the toxic loan issue. Over the past three years, banks have seen a large chunk of their loan books turning sour, while demand for fresh loans has remained low. As a result, the share of bad loans as a percentage to total loans has been rising.
The total quantum of bad loans – loans where corporate borrowers are not repaying their dues to banks- has crossed Rs 10 lakh crore. This includes the Rs 8.9 lakh crore share of government owned banks.
Meanwhile, frustrated with the slow resolution process under Insolvency and Bankruptcy Code, seven top lenders including SBI, ICICI Bank and IDBI Bank are said to be in the process of selling outstanding loans totaling a little less than Rs 28,000 crore.