After SBI, govt mulls PNB and BoB taking over smaller peers

Weeks after the merger of Stat Bank of India and its associate banks, the government is now prodding other major state-run lenders like Punjab National Bank and Bank of Baroda to take over their smaller peers.

Reports said the government is working on next round of consolidation, which could see Punjab National Bank (PNB) and Bank of Baroda (BoB) taking over smaller lenders.

Punjab & Sind Bank could be merged into PNB, and a weaker Indian Overseas Bank could be merged with bigger lender BoB, the report said, citing official sources.

Things, however, are at a proposal stage and no decision has been taken, the reports added.

Shares of PNB and BoB gained after report said the banks may take over smaller lenders. Shares of Punjab National Bank and Bank of Baroda Ltd rose more than 2.5 per cent each.

The shares of Punjab & Sind Bank and Indian Overseas Bank jumped as much as 6.35 per cent and 5.23 per cent, respectively

On the National Stock exchange (NSE), the Nifty PSU bank index gained up to 2.16 per cent, touching its highest since August 2015.

Earlier this month, the country's largest lender State Bank of India merged five subsidiary banks with itself, in a move seen as the beginning of consolidation in India's public sector banks.

The government is working on a road map for the overhaul of state-run lenders that involves the next round of consolidation, public offers in the next few months by banks to raise fresh capital, and changes in the hiring policy, including increased lateral entry.

The government is in the process of selecting candidates for consolidation and the Prime Minister's Office is reported to be keen on having a few large banks rather than several smaller ones.

This is also seen as part of the government's move to address the rising non-performing assets. The finance ministry is working closely with the Reserve Bank of India to address non-performing assets. 

Last week, RBI had unveiled stricter norms under the revised prompt corrective action framework, which may force lenders to consolidate in case they don't meet the regulatory requirements.