The 2020s saw significant developments in the rescue and capital reorganization of non-PSU banks in India:
Yes Bank (2020)
In March 2020, Yes Bank faced a liquidity crisis, leading the Reserve Bank of India (RBI) to intervene. The government facilitated a rescue through a joint investment by State Bank of India (SBI), ICICI Bank, HDFC Bank, and Kotak Mahindra Bank. SBI acquired a 48% stake in Yes Bank, later diluting it to 30% through a Follow-on Public Offering (FPO).
Lakshmi Vilas Bank (2020)
In November 2020, RBI directed DBS Bank India Limited to take over Lakshmi Vilas Bank (LVB), which had faced a negative net worth due to mismanagement and failed merger attempts. DBS benefited from LVB’s 559 branches. In a unique move, Tier-II bondholders of LVB were asked to write off their holdings, marking an unprecedented step in bank resolution.
Punjab and Maharashtra Co-operative Bank (2022)
In January 2022, RBI asked Unity Small Finance Bank (SFB) to take over the troubled Punjab and Maharashtra Co-operative Bank (PMC), which had suffered from management issues and a failed merger. Unity SFB, a new entity backed by Centrum Finance and BharatPe, absorbed PMC’s liabilities and operations, becoming a rare instance of an SFB merging with an established cooperative bank.
HDFC Bank and HDFC Merger (2020s)
HDFC Bank sought approval to merge with its parent company, HDFC. The merger led to capital holding concerns, prompting the combined entity to take a year to address these issues. HDFC also swapped its stake in Gruh Finance for a 15% stake in Bandhan Bank as part of the deal. The new entity was allowed to hold a maximum of 9.5% in other banks such as ICICI, Axis, Yes Bank, Bandhan, IndusInd, and Suryoday SFB.
Merger of Small Finance Banks (2023)
In October 2023, RBI approved the merger of Fincare Small Finance Bank into AU Small Finance Bank. Fincare’s shareholders were offered 579 shares of AU for every 2,000 shares they held. This deal marked the first major small finance bank merger.
Merger of Digital Banking Units and SFBs (2023)
In late 2023, RBI approved the acquisition of loss-making NE Small Finance Bank by Slice Digital Banking Unit (DBU). Slice had already acquired a 10% stake in NE SFB in 2022 and 2023. The exact value of the transaction was not disclosed.
Regional Rural Banks (RRB) Revamp (2010s-2020s)
As part of a policy introduced in the late 2010s, regional rural banks (RRBs) were merged into state-level entities. This restructuring aimed to increase the RRBs’ equity share and reduce competition between smaller RRBs and nationalized banks, making them more aligned with their promoters.
Co-operative Bank License Cancellations (2024)
In July 2024, RBI canceled the licenses of several co-operative banks, including Durga Co-operative Urban Bank, Banaras Mercantile Co-operative Bank, and City Co-operative Bank, due to capital inadequacy and weak earning prospects. This was part of a broader regulatory push to strengthen the financial sector. Similar cancellations took place for other co-operative banks earlier in January 2024.
These events reflect ongoing efforts to consolidate and stabilize India’s banking sector, particularly in the face of challenges in both public and private sectors.