banking merger: Canara Bank may be next in line to take over two small lenders

The government is looking to create a bigger bank in the next round of consolidation by getting state-run Canara Bank to take over smaller lenders Vijaya Bank and Dena Bank. “Discussions are on between banks. There is a possibility that first Vijaya and Dena merge, before being taken over by Canara Bank,” a senior government official told ET.

Canara Bank is the fourth-biggest bank by market capitalisation behind State Bank of India, Bank of Baroda and Punjab National Bank. The government is likely to push the proposal forward only after the monsoon session of Parliament gets over in August.

Canara Bank may be next in line to take over two small lenders

“It is going to be a politically active session with the GST (goods and services tax) rollout and the presidential election. Besides, it will also give time for banks to work out the possible issues that may arise,” said the official. For the same reason, plans to merge some lenders such as Punjab and Sind Bank have been dropped.

The government is looking at a three-tier structure for state-run lenders with around 10-12 banks as against the existing 21. “There have to be at least three banks of the size of the country’s largest lender SBI. And then we can have mid-sized banks and a few specialised banks catering to particular sectors,” said the official cited above.

Earlier this month, finance minister Arun Jaitley had said after reviewing the performance of state-run banks that the government was “actively working” toward consolidation of public sector banks but declined to provide details, saying this was a price-sensitive information.

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Other banks such as Indian Bank, Indian Overseas Bank and Syndicate Bank have also been asked to look at possible options for consolidation among themselves, said another finance ministry official. Dena Bank is among five public sector banks that have been put under the Reserve Bank of India’s prompt corrective action (PCA) programme which imposes various restrictions, including the sanction of fresh loans and dividend distribution.

The other four are IDBI, Bank of Maharashtra, Central Bank of India and Uco Bank. Dena Bank posted a loss of Rs 575.26 crore for the March quarter while Vijaya Bank reported a profit of Rs 204 crore for the same period. Canara Bank is among the top five banks in the country with a network of around 7,000 branches.