Merger Woes: Punjab National Bank Pushed to Crossroads

On(1) 23 August 2019, the Finance Minister of India declared and cleared the way for the merger(2) of 10 public sector banks into four large public sector banks (PSBs). In pursuance thereof, the Oriental Bank of Commerce (OBC) merged into Punjab National Bank (PNB). OBC held a 23% stake in Canara HSBC OBC Life Insurance Co. Ltd. (CHOIC), whereas PNB itself held a 30% stake in PNB MetLife India Insurance Co. Ltd. (PMLI) (Outlook, 2020). Thus, post-merger, PNB had two insurance businesses. Mr Mallikarjuna Rao, Managing Director & CEO, PNB, was in a fix on whether to continue with a 23% stake in Canara HSBC OBC Life Insurance or discard them. He wondered whether the two competing businesses would augur well for PNB. Should he not get out of Canara HSBC OBC Life Insurance and concentrate on PNB MetLife India Insurance or vice versa? How much cash could he raise through this disposal? Would it be right for him to dispose immediately or wait for a better valuation?(3) These questions were circling in his mind. He knew that whatever decision he took, his focus had to be on improving Punjab National Bank's profitability.