Andhra Bank is now facing the biggest-ever threat to its existence as an independent public sector bank. The meeting of Prime Minister Narendra Modi with bankers in Pune on January 3, is seen as the “final” stage of decision-making on the fate of the bank, which is suffering from a high percentage of non-performing assets.
It is learnt that the bank, founded by freedom fighter Pattabhi Sitaramayya in 1923, is a probable candidate for merger with Bank of Baroda or Punjab National Bank.
Senior executives of Andhra Bank have got “clear signals” for a possible merger following, among other things, the Centre’s refusal to heed to the bank’s request for ₹800-crore capital infusion to meet Basel III norms, said a top source.
With NPAs at 5.99 per cent as at end-September 2014, Andhra Bank now stands sixth from the bottom in the list of public sector banks with high NPAs; its total business stood at ₹2.60 lakh crore.
The top management of the bank, however, is keen to resist any move to merge it with a ‘strong’ bank. This was conveyed to the staff by its Chairman and Managing Director CVR Rajendran in a special interaction with the staff on Wednesday.
He is expected to make a presentation on the strengths of the bank, which was doing quite well till two years ago with gross and net NPAs of two per cent and one per cent, respectively.
Investor confidence is also high as reflected in the recent mobilisation of ₹500 crore tier I capital by way of perpetual bonds at much cheaper rates than other banks. Andhra Bank has a higher stake of foreign institutional investors than its peers in the industry.
An analysis of last two years’ performance shows that the main problem is its high exposure to local infrastructure companies which were not performing well. It is a major lender to big names such as Lanco Infra and IVRCL.
“The poll-promise of loan-waiver in Andhra Pradesh and Telangana too hit us bad as things are not yet settled in Andhra Pradesh. This has led to a spurt in agricultural loans,” a top executive of Andhra Bank told BusinessLine .
The very “seasonal nature” of bad loans itself is a case for its possible revival with improvement in the economy and general business environment, he added.
A merger will also kill the only local bank brand in Andhra Pradesh. AP Chief Minister N Chandrababu Naidu and Union Minister M Venkaiah Naidu have also been impressed upon about the need for timely “support” in keeping the brand alive.
UpsetMeanwhile, the 20,000-strong staff of Andhra Bank is livid over the developments. “We see this as a conspiracy. It is not consolidation of strong banks but is only elimination of weak banks. The Government and the RBI also have a role in creation of NPAs by their policies,” says V Raghavendra Sharma, General Secretary of All-India Andhra Bank Officers Federation.
It remains to be seen whether sentiment will prevail or the macroeconomic scenario will decide the road-map for Andhra Bank in the new year.