Public Sector Banks Merger - A Mega Decision By the Indian Government

The government has recently announced the merger of public sector banks. Nirmala Sitharaman, the Finance Minister of India, held a meeting with the CEOs of large PSBs including Union Bank of India, Canara Bank, Punjab National Bank, United Bank, Oriental Bank of Commerce, United Bank, Allahabad Bank, Corporation Bank, Syndicate Bank and Andhra Bank. On 30 August, 2019, the Finance Minister unveiled the mega plan to merge 10 public sector banks into four, to create less and stronger global-sized lenders. The government has already executed the merger of other PSBs (Bank of Baroda, Dena Bank & Vijaya Bank), and State Bank Of India (SBI) with 5 associate and Bhartiya Mahila Bank. In the article know what are the advantages and disadvantages of the bank merger in India.

The advantages & disadvantages of Public Sector Banks Merger in India

Advantages:

  • Reserve Bank Of India examines the bank performance, especially in terms of their Non-Performing Assets (NPA), which otherwise can be said as non-recovered loans. If the bank’s NPA percentage is above the prescribed norms, it will be directed to merge with a bigger bank to handle the situation. After the merger, the combined capital of the banks will be higher, reducing the overall NPA percentage.
  • The lending capacity of the banks is likely to increase after the merger
  • RBI has better access over the system and implementation of policies after the Public sector banks merger.
  • Customers can now easily access their accounts with more branches and ATMs.

Disadvantage:

  • Merging of the bank is not an easy process and could take more than a year. After the merger, there will be new terms of joining the accounts.
  • Some customers can panic to see their Branch board is replaced with a new one. The bank informs the existing customers via SMS, email, etc.
  • Customers’ choices will decrease in the market if there are many mergers of banks takes place.
  • Merger could provide you a higher loan benefit but also check the terms and conditions carefully as the interest rate may vary.
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Impact of Public sector banks merger in India

In place of the fragmented Public sector banks, the government of India merged the regional banks with the big PSBs to increase their efficiency in the market. Currently, there are 12 public sector banks and after the second PSB merger, there would be only 4 public sector banks in India. Let’s have a look at some of the new public sector banks merger that’s going to happen soon.

Merging of PNB, Oriental Bank Of Commerce and United Bank:

The combined entity would be the 2 largest PSB with Rs.18 lakh crore business and 11,437 branches across India. It could lead to high current and savings account ratio.

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Merging of Canara & Syndicate Bank:

Canara bank after the merger with Syndicate bank would be the fourth-largest PSB merger in India. It will gain Rs. 15.2 lakh crore business with 10,342 branches in India.

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Merging of Andhra, Union & Corporation Bank:

This merger would provide a large scale business benefit to the banks, with INR 14.6 lakh crore business and 9,609 branches in India.

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Merging of Indian & Allahabad Bank

The Allahabad and Indian Bank merger would be the 7 largest PSB, with benefits such as high current and savings account ratio and strong lending capacity. 

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