Money & Banking

Signs of cost benefits from mega PSU bank consolidation

K Ram Kuma Mumbai | Updated on June 25, 2020 Published on June 25, 2020

Financial results of PNB, Canara Bank, UBI and Indian Bank reveal scale, synergy improvements

The mega consolidation of 10 public sector banks (PSBs) into four with effect from April 1, 2020 seems to be yielding cost benefits via scale and synergy, going by the latest financial results of Punjab National Bank (PNB), Canara Bank, Union Bank of India (UBI) and Indian Bank.

When it comes to improvement in three important parameters — domestic current account, savings account (CASA) deposits, cost to income (C-I) ratio and cost of deposits (CoD), PNB, Canara Bank, UBI and Indian Bank are ticking at least two of the three boxes each.

These PSBs assimilated the financial numbers of six public sector banks (PSBs), which were amalgamated with them, to present their fourth quarter and financial year 2020 results.

CASA

The low-cost domestic CASA deposits of PNB have improved to 44.05 per cent of total deposits as at March-end 2020, against 43.51 as at March-end 2019.

PNB is now India’s second largest PSB after State Bank of India (SBI) following the amalgamation of Oriental Bank of Commerce and United Bank of India with it. The cost of deposits (COD) of a bank is inversely co-related to its CASA ratio. So, higher this ratio, lower is the COD.

The proportion of CASA deposits in Canara Bank’s total deposits improved to 32.59 per cent as at March-end 2020, against 30.86 per cent as at March-end 2019. Canara Bank is now the fourth largest PSB following the amalgamation of Syndicate Bank with it.

The proportion of CASA deposits of UBI and Indian Bank in their total deposits, however, nudged lower to 35.6 per cent as at March-end 2020 (from 36.1 per cent as at March-end 2019) and 34.60 per cent (34.70 per cent), respectively.

UBI is now the fifth largest PSB following the amalgamation of Andhra Bank and Corporation Bank with it. Indian Bank is now the seventh largest PSB following the amalgamation of Allahabad Bank with it.

C-I ratio

Among these four PSBs, the C-I ratio in the case of Indian Bank is the lowest, at 40.49 per cent in FY20, improving from 45.17 per cent in FY19.

C-I ratio is a measure of the cost of running a bank’s operations vis-à-vis its operating income. The lower the ratio, the more efficient and profitable is the bank.

In the case of PNB and UBI, the C-I ratio in FY20 improved to 44.82 per cent (47.03 per cent in FY19) and 45 per cent (48.8 per cent), respectively. In the case of Canara Bank, the C-I ratio, however, went up to 55.3 per cent (49.69 per cent).

Cost of Deposits

Thanks to the optimisation of the vast physical distribution network of these four PSBs and easy liquidity, the COD of all the four substantially improved in the fourth quarter of FY20.

COD is the interest paid on deposits/deposits. Banks with higher share of CASA reap the benefit of lower COD.

In the case of PNB and Indian Bank, the cost of deposits in Q4 FY20 declined to 5.02 per cent (5.21 per cent in Q4 FY19) and 5.21 per cent (5.34 per cent), respectively.

In the case of Canara Bank and UBI, the cost of deposits in Q4 FY20 declined to 5.38 per cent (6.07 per cent) and 5.48 per cent (5.68 per cent), respectively.

There are now 12 PSBs in the country, against the earlier 18.

Published on June 25, 2020

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