India announces series of mergers of state-run banks

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 just as India released data showing its economic growth in the April-June quarter fell to 5%, the lowest level in more than six years.

Sitharaman said that Oriental Bank of Commerce and United Bank would be merged with New Delhi-based Punjab National Bank, creating India's second largest lender after State Bank of India.

The government also announced that two lenders based in southern India, Canara Bank and Syndicate Bank , would be amalgamated.

In addition, Andhra Bank and Corporation Bank are to merge with Union Bank, while Indian Bank 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 with its associate banks, and this year, it merged Bank of Baroda with some smaller peers.

Sitharaman also provided details of the government's latest cash infusion into the state-run lenders.

To revive the sector, the government has injected roughly $36 billion rupees of taxpayer money into state-run banks over the last five years. In July, it announced plans to infuse another Rs700 billion ($9.79 billion) into the banks this fiscal year.

Sitharaman unveiled the 10 lenders to be granted funds. PNB is to be the biggest beneficiary, with 160 billion rupees, followed by Union Bank, which will receive 117 billion rupees.

"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.

Reuters