Why it is Highly Unlikely for UCO Bank to be Merged?


On 30th August, 2019, Finance Minister Nirmala Sitharaman announced merger of 10 Public Sector Banks (PSBs) into 4 big PSBs which was carried out w.e.f. 1st April, 2020. Thus, Oriental Bank of Commerce and United Bank of India were merged into Punjab National Bank; Syndicate Bank into Canara Bank; Andhra Bank and Corporation Bank into Union Bank; and Allahabad Bank into Indian Bank. Prior to that Dena Bank and Vijaya Bank were merged into Bank of Baroda and State Bank Associate Banks were merged into State Bank of India. These moves were aimed to boost economic growth and to make banks big enough to compete with Multinational Banks like Citi Bank and HSBC etc.

Subsequently, Government of India intended to table Banking Laws (Amendment) Bill, 2021 with aim to reduce Government holding in PSBs from current 51 percent to 26 percent. This was conceived to facilitate privatisation of two PSBs – the names of which were not announced. However, due to Assembly elections in Uttar Pradesh and Punjab, was bill was not tabled in winter session of Parliament.

Following 2021-22 Budget Announcements, Niti Aayog identified Bank of India, Bank of Maharashtra, Central Bank of India, and Indian Overseas Bank for privatisation and later recommended to privatise Central Bank of India and Indian Overseas Bank.

However, one may ask why UCO Bank was left untouched?

Contrary to what one may think the answer to this question lies in the realm of International Relations, particularly between United States of America (US) and Islamic Republic of Iran.


To understand things better we need to delve a little deep into the history.

Prior to Islamic Revolution of 1978-79, Iran was ruled by king Mohammad Reza Shah. In the aftermath of Revolution, Shah had to fled to United States of America and Ayatollah Khomeini, who were earlier in  exile took charge. Through subsequent referendums Iran was constituted in Islamic Republic of Iran and a theocratic constitution was adopted.

In November 1979, supporters of Khomeini took over US Embassy in Tehran and took 52 officials and civilians as hostage (popurlarly known as Hostage Crisis) demanding extradition of Shah from US. The then US President Jimmy Carter refused to extradite Shah to Iran. Shah left US for Egypt where he died in July 1980. However, the standoff between US and Iran continued till January 1981 when the hostages were released following Iran – Iraq War and mediation by Algerian Government between US and Iran. In 1988, US attacked Iran (Operation Praying Mantis) following which Iran had to agree to a ceasefire with Iraq.

Subsequently, US imposed several economic and diplomatic sanctions against Iran and US – Iran relations are sour since then. US and Iran do not have direct diplomatic ties since early 1980. Pakistan and Switzerland serve as representatives of Iran and US respectively as far as their mutual diplomacy is concerned. Any contacts between them are carried through Pakistani Embassy in Washington D.C. and Swiss Embassy in Tehran.


Coming back to present, the major bone of contention between US and Iran at present is Iran’s Nuclear Programme.

Iran strives to harness nuclear energy, whereas, the West sees it as an affort to build nuclear weapons.

Iran’s nuclear programme termed as Atoms for Peace Programme began in 1950s with the help of United States. In 1970, Iran ratified Nuclear Non-Proliferation Treaty (NPT) which meant agreeing to periodic inspection of its nuclear facilities by International Atomic Energy Agency (IAEA).

However, things changed after Islamic Revolution of 1979 mentioned above. Western nations led by US withdrew their support from Iran, however, Iran kept nuclear programme running secretively with alleged support from Russia. At present, Iran has several Uranium enrichment plants and several research sites. When it came to fore that Iran has not abolished its nuclear programme and is still in race of harnessing nuclear technology, an investigation was launched by IAEA in 2003, however, several years later IAEA came to the conclusion that it has not found any evidence that Iran is building a nuclear weapon since 2009 but West is still apprehensive of Iran’s intentions. Meanwhile, in 2011, Iran’s first nuclear power plant named Bushahr I became operational.


As per definition, a sanction is a punitive measure for undertaking an unlawful act by someone. As already mentioned US imposed sanctions on Iran as early as 1979 in the wake of Hostage Crisis. More sanctions were subsequently imposed upon Iran by US for Iran’s alleged support for terrorism and actions taken against US interests. European Union (EU) had followed suit. Several sanctions were also imposed by United Nations Security Council (UNSC) for Iran’s refusal to halt its nuclear programme, however, the same have been lifted since 2016. Iran is also blacklisted by The Financial Action Task Force On Money Laundering (FATF) along with North Korea.


A glimmer of hope for smoothening US-Iran relations appeared in 2015, when Iran signed The Joint Comprehensive Plan of Action (JCPOA), popularly known as Iran Nuclear Deal, with US, China, Russia, France, United Kingdom, Germany, and European Union. Negotiations occurred for the next twenty months, however, Donald Trump pulled back from the JCPOA. Joe Biden’s administration is yet to arrive at an agreement with Iran.


Sanctions imposed by US and its allies have severe impact on the trade and economy of Iran. Iran’s assets amounting to about $100 billion are frozen in overseas banks. Iran is prohibit from using international payment systems. Though there are not sanctions on import of medicines, however, it is extremely difficult for Iran to procude life saving medicines and even vaccinations in the time COVID-19 pandemic. Iranian Rial is falling, its oil exports are plummeting, and economy in dire stress.


Indo-Iranian bilateral trade stood at $17.03, $4.77 and $2.1 billion in 2018-19, 2019-20 and 2020-21 respectively. The falling trade value is attributed to the fact that India has not imported any oil from Iran since May 2019. This is because the waiver extended to India by US to import oil from Iran had expired in May 2019 and has not been renewed since then. Apart from crude oil, Indian imports from Iran include dry fruits, glass and glassware, precious and semi-precious stones, gypsum, leather, and chemicals etc. On the other hand, India exports rice, tea, sugar, pharmaceutical products, artificial jewellary, and fruits etc.


Prior to March 2019, the UCO Bank was the only bank authorized to facilitate trade transactions with Iran. But, since March 2019 IDBI Bank has also received Government of India’s nod to undertake trade transactions with Iran. Though, IDBI Bank has been classified as private bank by Reserve Bank of India (RBI), however, technically speaking there is a catch. Government of India along with Life Insurance Corporation of India (LIC) together owns around 95 percent stake in IDBI and LIC is wholly owned by the Government of India. Thus, loosely speaking, the UCO Bank is not the only so called Public Sector Bank to facilitate Indo-Iran bilateral trade.


So, introducing IDBI into the picture was a way to clear the path for the merger of UCO Bank?

We assume it is not so. The UCO Bank is here to stay for two reasons. Firstly, UCO Bank is the only PSB left having headquarters in Kolkata and Government of India will like to keep it so for strategical reasons. And, secondly, authorization of IDBI Bank will introduce an element of healthy competition as far as trade with Iran is concerned. If UCO Bank is merged with any other PSB, it would defeat the purpose of authorizing IDBI. This is also what the trade community in India feels. 

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