Analysis: Ideal PSU bank matches

From one meeting to several cagey statements to countless speculation - there has been a lot of hot air on the subject this week. What are the strengths of the big banks and which small ones may they pair with. CNBC-TV18's Sunita Nagpal and Nayantara Rai play matchmakers.

Chairmen of Punjab National Bank (PNB), Bank of India, Bank of Baroda (BoB), Union Bank and Canara Bank were the banks called to the Finance Ministry to consider consolidation. So here's analysing the strengths of each, their gaps and hence the banks they may target.

PNB, the largest after state bank, has most of its 4,500 branches in the North as also in Eastern and Central India. With government stake at 58%, it does not have much room to do follow on offers. So its ideal match should be in the South and should ideally have high government stake.
The best fit ought to be Indian Bank the excellent south based bank with 80% government state. Corporation Bank with 57% government stake will also bring good southern exposures. Indian Overseas Bank (IOB) is not as strong but brings exposure in the South. However, will such a north south marriage bring culture clashes?

Bank of Baroda with around 3,000 branches predominantly in West, Central and North India will also like a bank with good eastern and southern exposure.  Indian Bank, IOB and Corporation with bring the southern fit and UCO can bring an eastern fit. But in terms of the capital headroom that it brings, Indian bank may be the best fit for BoB, being western and central at heart, it may clash less with the deep south

Bank of India's 3,033 branches largely lie in the west followed by North and Central India. With 64% government stake, it has room to issue around 25% more capital. Hence Corporation Bank, the well run southern bank, could be an ideal match. However, Bank of India had previously tried out a marriage with Union Bank, which the government failed to solemnise. Rumour mills say, that since Chairman Alok Mishra comes from Oriental Bank, will he eye OBC?

Union Bank with its 2,700 branches in the West and the North, like we told you, had tried to tango with Bank of India. It still can, but there could be some branch overlap.  Union could look for UCO to reach the East or it could look for IOB or Indian Bank in the South. Indian Bank is a better match since it is 80% government-owned, giving scope for capital raising. Also cultural clashes with the South may be unlikely. Union has had a record of south-based chairmen.

Canara Bank has around 2,070 branches, 55% of which are in the South. It had in the past tried to date Dena, and may do so again to get presence in western states like Gujarat.  It won't need to look for banks with capital raising headroom since government's stake in Canara is a good 73%. Maybe Canara can also look at OBC for the North and UCO for the East.

But these marriages made on excel sheets may not necessarily succeed in the real world. Will the Government of Tamil Nadu allow the sale of Indian Bank to a northern or western bank? Will Karnataka allow the sale of Corporation Bank with its Kannadiga entity to a Northerner? May be bank marriages need to be mediated by politicians, bankers, babus and god forbid even astrologers.