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RPT-UPDATE 2-India announces series of state-run bank mergers to strengthen lenders

Mon 2nd September, 2019 12:30am
(Repeats Friday's story with no changes to the text)
    * Govt announces a series of mergers involving 10 banks
    * Total number of government-owned banks cut to 12
    * 10 state-owned lenders will be granted additional funds

    By Mayank Bhardwaj and Aftab Ahmed
    NEW DELHI, Aug 30 (Reuters) - India announced a series of
mergers involving 10 state-owned banks on Friday, as it moves to
strengthen a sector struggling under a mountain of debt and
ensure stronger balance sheets to boost lending and revive
economic growth.
    The mergers, which cut to 12 the total number of state-owned
banks from 27 in 2017, are the first since Indian Prime Minister
Narendra Modi's government won re-election in late May.
    Modi's government has vowed to clean up the banking sector
and reduce the number of state-run banks. 
    "Twelve solidly present, well-consolidated, energised,
adequately capital endowed banks will now operate," Finance
Minister Nirmala Sitharaman told a news conference. "We're
trying to build the NextGen banks."
    The announcement came as India released data showing its
economic growth in the April to June quarter fell to 5%, the
weakest in more than six years.  urn:newsml:reuters.com:*:nL4N25J32Z  
    The government has been taking steps to boost investment in
the country, and to aid sectors such as banking and auto
manufacturing.  urn:newsml:reuters.com:*:nD8N24A00S
    Sitharaman said Oriental Bank of Commerce  ORBC.NS  and
United Bank  UBOI.NS  would be merged with New Delhi-based
Punjab National Bank  PNBK.NS  to create India's second largest
lender after State Bank of India  SBI.NS . 
    Two lenders based in southern India, Canara Bank  CNBK.NS 
and Syndicate Bank  SBNK.NS , would be amalgamated, the
government added. 
    Elsewhere Andhra Bank  ADBK.NS  and Corporation Bank
 CRBK.NS  are to merge with Union Bank  UBOI.NS , while Indian
Bank  INBA.NS  will merge with Allahabad Bank. 
    "The mergers have been done selectively to ensure that the
stronger banks are not impacted due to the weaker banks in the
merger process," said Siddharth Purohit, a research analyst at
SMC Institutional Equities.
    In 2017 the government merged State Bank of India  SBI.NS 
with its associate banks, and this year it merged Bank of Baroda
 BOB.NS  with some smaller peers.
    "The consolidation will aid economies of scale for these
banks, resulting in improved cost of funds and operating
efficiency," said Mona Khetan, a banking analyst at Reliance
Securities.
    However, merger-related issues including human resources and
technology concerns, branch rationalization, and realigning
non-performing assets may impact banks' interim profitability,
she added.
    
    CASH INFUSION
    Sitharaman also announced the ten lenders to be granted
funds in the government's latest cash infusion into state-run
banks, after it announced in July plans to inject another 700
billion rupees ($9.79 billion) into the sector this fiscal year.
    PNB is to be the biggest beneficiary, receiving 160 billion
rupees, followed by Union Bank with 117 billion rupees. 
    The government has injected roughly $36 billion rupees of
taxpayers' money into state-run banks over the last five years
to revive the sector. 
    "The infusion is primarily aimed at giving a boost to the
economy," said Sitharaman, while adding that gross
non-performing asset levels at state-run banks have fallen
sharply over the last fiscal year.
    Apart from injecting more funds, the government is also
taking steps to strengthen the banks' boards oversight
capabilities. It has allowed them to hire external chief risk
officers and to provide them market-linked compensation. 
    This will improve underwriting standards at these banks,
which has been a long-time concern, added Khetan. 
    
 ($1=71.4920 Indian rupees)

 (Reporting by Mayank Bhardwaj and Aftab Ahmed; Additional
reporting by Nupur Anand and Abhirup Roy in MUMBAI; 
Writing by Nupur Anand and Euan Rocha;
Editing by Sanjeev Miglani, Clarence Fernandez and Jan Harvey)
 ((euan.rocha@tr.com; +91 22 6180 7257; Reuters Messaging:
euan.rocha.reuters.com@reuters.net))
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