The Reserve Bank of India (RBI) was forced to take control of Yes Bank after it failed to come up with a “credible revival plan” to raise business-sustainable equity. The central bank also placed a moratorium on the troubled lender on Thursday, restricting withdrawals to Rs 50,000 per depositor till April 3.
Some are drawing parallels between last year's Punjab and Maharashtra Co-operative (PMC) Bank crisis and Yes Bank, given the PMC depositors continue to face caps on withdrawal of cash. However, there are reports of a swift resolution to the current Yes Bank crisis; with talks of mergers, consortium-led investment plans and other solutions being floated.
While a merger does not bring changes in the overall balance sheet, it increases the share ratios and performance of the weak banks as the profits from the strong bank are merged with it. Mergers are usually seen as a solution to stem the drain on the exchequer.
In September 2019, Finance Minister Nirmala Sitharaman announced a mega-merger of ten state-run banks into four.
When Dena Bank recorded huge gross NPAs (Non-Performing Assets) of 22%, the Centre announced the merger of three banks — Bank of Baroda, Vijaya Bank and Dena Bank — which came into force in April 2019. The combined capital made it the third-largest bank with 34% of low-cost deposits, a capital buffer of nearly 12% and a business book of Rs 14.82 lakh crore.
The merger of State Bank of India with five of its associate banks and Bharatiya Mahila Bank was done in April, 2017. The merger fared positively, bringing additional assets of Rs 7.49 lakh crore to the SBI's balance sheet of Rs 27.05 lakh crore.
In 2015, we saw the merger of two private banks — Kotak Bank and ING Vysya Bank. The merger fared well with assets growing over Rs 3 lakh crore.
In April 2008, the Centurion Bank of Punjab merged with private lender HDFC. Post the merger, the gross NPAs increased marginally for a short period but have remained below 1% since.
Interestingly, a merger of the branches of Maharashtra State Co-operative Bank (MSCB) with PMC has been proposed as well. The proposal is for a merger of the branches in Gujarat and other states where PMC has a presence.