Bank Merger - Will the Merger of Indian Banks Boost the Economy?

According to an announcement by the Union Government of India as of August 2019, 10 banks got consolidated into 4 banks on April 1, 2020. Here’s what happened: the United Bank of India and the Oriental Bank of Commerce merged with the Punjab National Bank, while the Syndicate Bank was merged with Canara Bank. The Allahabad Bank is now amalgamated into the Indian Bank while the Andhra Bank and the Corporation Bank are now consolidated with the Union Bank of India. Last year, Dena Bank and Vijaya Bank were merged with the Bank of Baroda.

Thus, on April 1, 2020, with the consolidation of various public sector banks, their numbers have come down from 27 t0 12.

What was the Plan?

Now, you may be asking whether the government had a plan to merge banks for a long time. The answer is yes, but it may surprise you. You see, the genesis of the idea to merge PSBs is from the time of M. Narshimham Committee Report of 1991. It was appointed to oversee, review and report on the functioning of commercial banks along with other financial institutions. This was done to improve their functioning through suggestion of better models.

The key recommendation of the committee was to establish a 4-tiered hierarchy for the Indian Banking structure. This was to contain three or even four large banks such as SBI at the top, 10 national banks with branches around the country, local banks to cater to the various regions, and lastly the rural banks for financing agriculture.

Will the Plan Work?

Now, the question is whether the merger of all these banks bode well for the customers. After all, it is for them, and for the bank’s own efficiency the merger took place, right? To know that, here’s something that needs to be understood first. Banks have two ways of looking at customers: liabilities and assets. The ones who borrow from banks are its assets, since from them the bank shall earn through interest. The customers who only deposit in their bank are liabilities because the banks need to pay them interest. For the depositors, there shall be problems like reduction of bank ATMs and branches. However, they should not have a problem because of mobile banking apps and other digital technology.

For the borrowers, these bank mergers will only help entrepreneurs. Merged economic entities and a stronger, consolidated balance shall have more power to give credit to entrepreneurs. Such a strong banking portfolio will also help get banks access to global markets on favorable terms.

Bank Merger - Top 10 Public Sector Banks Merger in 2021

From April 1, 2020, ten government-run banks have been merged into four entities. The branches of the banks getting merged shall now be a part of the parent bank. Customers of such banks shall likewise be customers of the parent bank.

This news of the bank mergers was announced in August, 2019. It got its approval by the Union Cabinet on the 4th of March.

This is not the first of India’s bank mergers. There have been several in the past, such as in 2017, State Bank of India took 5 associate banks, as well as the Bharatiya Mahila Bank. In 2019, Dena bank and Vijaya Bank were taken under Bank of Baroda. There was a merger of ING Vyasa and Kotak Mahindra Bank, along with an amalgamation of the Centurion Bank of Punjab Ltd. With the HDFC Bank, which took place in 2014 and 2008 respectively.

Here are a few facets of the merger:

1. As per the news yesterday, OBC or Oriental Bank of Commerce and the UBI or the United Bank of India shall get merged with Punjab National Bank. This merged economic entity shall now become the second largest public sector bank. It shall have a starting business worth Rs. 17.95 lakh crores and has 11, 437 branches.
2. The Syndicate Bank is merged with Canara Bank. This shall be the fourth largest bank in the public sector with a business worth Rs. 15.20 crore and a branch network of 10,324 branches.
3. All branches of Allahabad Bank shall now function as branches of Indian Bank. This merger gives rise to the seventh-largest bank in the public sector with a total business of Rs. 8 crores.
4. After the merging of Corporation Bank and Andhra Bank with the Union Bank of India, their branches shall now belong to the UBI. This shall now become the fifth-largest bank in the public sector. It shall have a business of Rs. 14.59 crores and will have 9,609 branches.
5. To take care of merger plans of these banks, the government of India has allocated Rs. 65,855 crores.
6. Rs. 16,091 crores is given in PNB, Rs. 11,768 crores is given to UBI, Rs. 6,571 crores is given to Canara Bank while Rs. 2534 crores is given to Indian Bank. Allahabad Bank received 2,153 crores, the Union Bank of India received Rs. 1,666 crores, the Andhra Bank got Rs. 200 crores, the Indian Overseas Bank got Rs. 4,360 crores while the UCO Bank for Rs. 2,142 crores.
7. The government says these mergers shall lead to the development of stronger banking institutions.
8. It shall lead to the consolidation of PSBs from 27 to 12.
9. The 12 new public sector banks shall be 6 merged ones and 6 independent ones. Merged ones include SBI, PNB, BoB, Canara Bank, UBI and Indian Bank. Independent ones include Indian Overseas Bank, Bank of Maharashtra, UCO Bank, Punjab and Sindh Bank.