Union Minister of Finance & Corporate Affairs Smt. Nirmala SItharaman's Presentation on amalgamation of National Banks



Union Minister of Finance & Corporate Affairs 
Smt. Nirmala SItharaman's Presentation on amalgamation of National Banks 

Measures to Achieve Higher Economic Growth

Progress since Announcements on 23.8.2019

Quick Follow-up on Measures Announced on 23.8.19


Announcements
Actions initiated

1 Banks to launch Repo rate linked loan products
8 PSBs have launched repo-linked
home/vehicle/mortgage/cash-credit loans

2. Customer Ease: Time-bound
return of loan documents
Instructions issued. To be enforced through
CBS. Regional Managers responsible.

3. Customer Ease: Online
tracking of loan applications
Implementation initiated with Retail/MSME on
Loan Management Systems

4. Transparent One Time
Settlement (OTS) Policy
 Instructions issued

5. Support to NBFCs/HFCs:
Partial Credit Guarantee
Sanction begun with ~₹ 3,300 crore and
~₹ 30,000 crore more in pipeline

6. Co-origination of loans by
PSBs jointly with NBFCs
Bank-NBFCs tie-ups with 4 NBFCs already
in place. More in pipeline.

Rapid Growth needs Robust Credit Capacity
Strong Foundation Laid through Financial Sector Reforms An Ongoing Endeavour

BANKING THEN
BANKING NOW

1. Phone Banking
No interference in commercial decisions

2. Layered entry operations
3.38 lakh “shell” companies struck off

3. Auditors not independently regulated
NFRA set up as independent regulator of auditors

4. Restructuring of stressed assets often without actual resolution
Resolution through IBC: Connected party debarred

5. Stress restructured and not recognized as NPA
Restructuring schemes withdrawn


6. Releases often without ensuring loan conditions/ project clearances
Releases only after ensuring loan conditions and clearances

7. Consortiums with 30-31 members
Consortiums limited to 7 to 9

8. Inadequate techno-economic valuation capacity
Techno-economic valuation cells created in banks

9. Technology / analytics not fully leveraged for appraisal
Technology / analytics used for robust due diligence

10. Inadequate Early Warning Signal system & no specialised monitoring
EWS in place; Specialised agencies monitor loans > ₹ 250 crore

11. Cash flows not ring-fenced
Cash flows ring-fenced

12. Banks overexposed to corporate loans
Business plans implemented for balanced asset mix

13. Sanction and monitoring not strictly separated
Sanctioning and monitoring of big loans strictly separated

14. Banks often on verge of default due to poorer quality capital
Quality of Tier-I capital enhanced

15. Inadequate slippage prevention mechanism
Stressed asset verticals created

16. Fleeing defaulters retained control of assets
Fugitive Economic Offenders Act to confiscate assets


17. Inadequate digital lending interface
PSBloansin59minutes.com  launched

18. Foreign branches retained despite losses
Foreign branches rationalised

19. Ad hoc loan-pricing
Adherence to risk-based pricing

20. Loan Management System (LMS) in only a few PSBs
Retail & MSME LMS implemented

21. SWIFT messages not always linked to CBS
SWIFT messages linked to CBS

22. Slow, multi-level decision-making for loan sanction
IT-based centralised processing centres and verticals started

23. No online bill discounting platform
MSME bills discounted on TReDS

24. Selection of top management not done independently
Selection at arm’s length through Banks Board Bureau

25. MD selection from within banks of same category
MD selection from market for large PSBs and wider pool for other PSBs

26. MD also being Chairman weakened Board oversight
Non-executive Chairman introduced

Gains Visible from Amalgamation of BoB + Vijaya + Dena Bank

Unlocking potential through Consolidation
Big banks with enhanced capacity to increase credit
Banks with strong national presence and global reach
Operational efficiency gains to reduce cost of lending

Banks with scale for building a $ 5 trillion economy
Enhanced risk appetite
Thrust on NextGen technology for banking
Wider offerings with enhanced customisation
Better ability to raise resources from markets

Snapshot of Consolidations
PNB + Oriental Bank of Commerce + United Bank

2nd largest PSB with business of ₹ 17.95 lakh crore (~1.5 times PNB)
2nd largest branch network in India, with 11,437 branches
Scale and synergy benefits through:
High CASA and lending capacity combined in consolidated bank
Large cost reduction potential due to network overlaps
Cost saving and income opportunities for JVs and subsidiaries
Same CBS platform (Finacle) in all three banks to enable quick realisation of gains

PNB + Oriental Bank of Commerce + United Bank
                                              PNB OBC United Bank of India Amalgamated bank
Total business (in crore ₹) 11,82,224  4,04,194   2,08,106           17,94,526
Gross advances (in crore ₹) 5,06,194  1,71,549       73,123              7,50,867
Deposits (in crore             ₹) 6,76,030 2,32,645  1,34,983              10,43,659
CASA ratio                             42.16%     29.40%     51.45%            40.52%
Domestic branches                6,992      2,390       2,055                  11,437
PCR                                        61.72%    56.53%      51.17%                59.59%
CET-I ratio                            6.21%      9.86%       10.14%                7.46%
CRAR ratio                            9.73%     12.73%       13.00%               10.77%
Net NPA ratio                       6.55%     5.93%          8.67%                6.61%
Employees                             65,116     21,729         13,804               1,00,649


Canara Bank + Syndicate Bank
4th largest PSB with business of ₹ 15.20 lakh crore (~1.5 times Canara Bank)
3rd largest branch network in India, with 10,342 branches
Scale and synergy benefits through:
Large cost reduction potential due to network overlaps
Similar culture to enable smooth consolidation
Cost saving and income opportunities for JVs and subsidiaries
Same CBS platform (iFlex) in both banks to enable quick realisation of gains

                                         Canara Bank Syndicate Bank Amalgamated bank
Total business (in crore      ₹) 10,43,249     4,77,046                  15,20,295
Gross advances (in crore   ₹) 4,44,216        2,17,149                   6,61,365
Deposits (in crore              ₹) 5,99,033        2,59,897                  8,58,930
CASA ratio                           29.18%          32.58%                    30.21%
Domestic branches               6,310              4,032                      10,342
PCR                                       41.48%         48.83%                    44.32%
CET-I ratio                           8.31%             9.31%                      8.62%
CRAR ratio                           11.90%          14.23%                   12.63%
Net NPA ratio                        5.37%           6.16%                         5.62%
Employees                             58,350           31,535                       89,885


Union Bank + Andhra Bank + Corporation Bank
5th largest PSB with business of ₹ 14.59 lakh crore (~2 times Union Bank of India)
4th largest branch network in India, with 9,609 branches
Scale and synergy benefits through:

Business to become twice to 4½ times existing bank business
Large cost reduction potential due to network overlaps
Cost saving and income opportunities for JVs and subsidiaries
Same CBS platform (Finacle) in all three banks to enable quick realisation of gains

                          Union Bank Andhra Bank Corporation Bank Amalgamated bank
Total business (in crore ₹) 7,41,307       3,98,511   3,19,616                14,59,434
Gross advances (in crore ₹) 3,25,392     1,78,690  1,35,048                  6,39,130
Deposits (in crore            ₹) 4,15,915      2,19,821   1,84,568                 8,20,304
CASA ratio                           36.10%        31.39%      31.59%                     33.82%
Domestic branches             4,292           2,885        2,432                        9,609
PCR                                      58.27%        68.62%      66.60%                  63.07%
CET-I ratio                          8.02%          8.43%       10.39%                    8.63%
CRAR ratio                         11.78%          13.69%       12.30%                  12.39%
Net NPA ratio                    6.85%           5.73%         5.71%                     6.30%
Employees                          37,262          20,346       17,776                    75,384


Indian Bank + Allahabad Bank
7th largest PSB with business of ₹ 8.08 lakh crore (~1.9 times Indian Bank)
Nationwide presence with strong networks in the South, North and East
Scale and synergy benefits through:
Doubling of business size
Major scaling up of reach due to complementary networks
High CASA and lending capacity in consolidated bank
Same CBS platform (BaNCS) in both banks to enable quick realisation of gains

                                               Indian Bank Allahabad Bank Amalgamated bank
Total business (in crore       ₹) 4,29,972   3,77,887                   8,07,859
Gross advances (in crore      ₹) 1,87,896   1,63,552                    3,51,448
Deposits (in crore                 ₹) 2,42,076   2,14,335                   4,56,411
CASA ratio                              34.71%           49.49%                  41.65%
Domestic branches                 2,875           3,229                        6,104
PCR                                          49.13%         74.15%                    66.21%
CET-I ratio                              10.96%         9.65%                     10.36%
CRAR ratio                              13.21%         12.51%                     12.89%
Net NPA ratio                         3.75%          5.22%                      4.39%
Employees                               19,604         23,210                     42,814

Consolidated PSBs for strong national presence & global reach
82% of PSB business
56% of commercial bank business

Anchor bank Amalgamating bank(s) Business size* PSB rank by size CBS
Punjab National Bank  Oriental Bank of Commerce
                                        United Bank of India ₹ 17.94 lakh cr. 2nd largest Finacle
Canara Bank                  Syndicate Bank           ₹ 15.20 lakh cr. 4th largest iFlex
Union Bank of India     Andhra Bank
                                       Corporation Bank         ₹ 14.59 lakh cr. 5th largest Finacle
Indian Bank                  Allahabad Bank            ₹ 8.08 lakh cr. 7th largest BaNCS
SBI Amalgamated earlier ₹ 52.05 lakh cr.
Bank of Baroda Amalgamated earlier ₹ 16.13 lakh cr.

To strengthen national presence
Bank                               Business size*
Bank of India                 ₹ 9.03 lakh cr.
Central Bank of India    ₹ 4.68 lakh cr.

To strengthen regional focus
Bank                               Business size*
Indian Overseas Bank    ₹ 3.75 lakh cr.
UCO Bank                       ₹ 3.17 lakh cr.
Bank of Maharashtra    ₹ 2.34 lakh cr.
Punjab and Sind Bank  ₹ 1.71 lakh cr..

Governance Reforms

PSB Boards empowered
To make management accountable to Board, Board committee of
nationalised banks to appraise performance of GM & above (incl. MD)
To make span of control manageable in large PSBs, post consolidation,
Boards given flexibilty to introduce CGM level as per business needs
To recruit Chief Risk Officer from market, at market-linked
compensation to attract best available talent
To enable Succession Planning, Boards to decide system of Individual
Development Plans for all senior executive positions
To ensure sufficient tenure, Boards given flexibility to prescribe
residual service of two years for appointment of GM and above

Strengthening Board committee system
Flexibility given to Boards of large PSBs to enhance sitting fees of NonOfficial Directors (NODs)

For better Board committee functioning, Boards given mandate to
reduce/rationalise Board committees

Risk Management Committee given mandate to fix accountability for
compliance of Risk Appetite Framework

Longer term to Directors on Management Committee of Board (MCB)
to enable them to contribute effectively

MCB loan sanction thresholds enhanced by up to 100%, to enable
focussed attention to higher value loan proposals

Enhancing effectiveness of Non-official Directors (NoDs)
NODs to perform role analogous to independent director
Boards given mandate for training of directors, both for induction and
for specialised purposes
Boards given mandate to evaluate NOD performance annually on
peer-review basis

Leadership development
Executive Directors’ strength in larger banks raised to 4, for better
functional focus and thrust to technology

Creation of leadership pipeline under BBB’s Leadership Development
Programme

PSBs to drive growth
Repositioning PSBs for $5 trillion economy
Wide-ranging Reforms
Financially stronger PSBs
Well-provisioned PSBs: 14 in profit
Technology-driven banking
Scale and synergy — Consolidation
Governance strengthened

Further capital for:
 Credit Regulatory compliance

Bank                               Amount
 In crore ₹
Punjab National Bank        16,000
Union Bank of India           11,700
Bank of Baroda                     7,000
Canara Bank                         6,500
Indian Bank                          2,500

Indian Overseas Bank          3,800
Central Bank of India           3,300
UCO Bank                              2,100
United Bank of India            1,600
Punjab & Sind Bank                750

Total                                     55,250

Thank You


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