Indian govt may merge banks with other entities to raise funds

In a bid to facilitate raising of funds from the market, the Centre may consider merging banks, wherein holding of government is close to 51 per cent, with entities with high government stake, a report said. “In our report 'Basel II Norms in Indian Banking', we had pointed out that listed banks, namely Andhra Bank, Dena Bank and Oriental Bank of Commerce have government holdings close to 51 per cent,” Keynote Capital Research said in a report.
The government holding in these banks are 51.55 per cent, 51.19 per cent and 51.09 per cent, respectively. Funding is essential for these banks as these banks can neither raise capital through market nor from other shareholders, it said. The report said with the growth in credit portfolio of banks, the government may find it difficult to keep on infusing capital into banks without straining its finances. “In such a scenario, government may look at merger of these banks in which it has hi gh shareholding with banks where its shareholding is low, as this will allow merged entity to raise funds from the market,” it added. Recently, the government announced a re-capitalisation package of Rs 3,800 crore for three public sector banks - UCO Bank, Central Bank of India and Vijaya Bank - to enhance the capital adequacy ratio of these banks to over 12 per cent.