Parishodh Journal · announced merger of six public sector banks (PSBs) with four better performing...

BIG BANK THEORY: A STUDY OF AMALGAMATION PLAN OF 10 PUBLIC

SECTOR BANKS INTO 4 ENTITIES

DEEPAK KUMAR ADHANA

Research Scholar, Institute of Mgt. Studies & Research (IMSAR), M.D. University, Rohtak

REBHAVA RAJ RAGHUVANSHI

Asst. Professor, Kamal Institute of Higher Education & Advance Technology, New Delhi

ABSTRACT:

The Indian government on 30th

August 2019 unveiled a plan to merge 10 public

sector banks (PSBs) into four, reducing the number of state-owned banks from 18 to 12, in a

bid to create “next-generation” financial institutions with stronger balance sheets and bigger

risk appetite. Having done two rounds of bank consolidation earlier, this is what Government

wants to do for a robust banking system and a $5-trillion economy. Punjab National Bank will

take over Oriental Bank of Commerce & United Bank of India to become the country’s largest

lender after State Bank of India in terms of business. Canara Bank will subsume Syndicate

Bank; Andhra Bank and Corporation Bank will merge with Union Bank of India;

and Allahabad Bank will become part of Indian Bank. The key factors for the mergers were:

Technological platform, customer reach, cultural similarities, and competitiveness.

In 2017, India had 27 PSBs, but the National Democratic Alliance government implemented

two rounds of mergers in its previous tenure. One was the merger of five associate banks and

Bharatiya Mahila Bank with SBI (from April 2017); second, Dena Bank and Vijaya

Bank merged with Bank of Baroda to create the country’s third-biggest lender, which came

into effect from April 1 this year.

The present paper is based on the study of Public Sector banks total business, deposits and

Non-Performing Assets (NPA). The paper also studies the Government’s plan to amalgamate

the 10 public sector banks into four large institutions as a part of its attempt to bolster the

capital base of these lenders. The paper in the end, studies the impact of PSBs Merger and

how customers are likely to be impacted.

KEYWORDS —Capital Infusion, Consolidation, Merger, PSBs

Parishodh Journal

Volume IX, Issue III, March/2020

ISSN NO:2347-6648

Page No:2245

I. INTRODUCTION:

Mergers and amalgamations are normal business phenomena across different industries. Banking

is no exception. Mergers take place between a weak bank with a stronger Bank to improve its

functioning and widen its capital base. In 1991, Govt of India appointed a Committee for

banking sector reforms under the Chairmanship of Sri M.L. Narasimham, who recommended

among other things (like NPA norms, Capital adequacy frame work under Basle norms) for

consolidation of a large net work of Indian Banks into 3/4 international Banks, 10 national Banks

and a few local Banks.

Consolidation among public sector banks has been on the agenda for the NDA government since

2014, when it first came into power. In third set of major policy announcements to address

economic concerns, Union Finance Minister Nirmala Sitharaman on 30th

August 2019

announced merger of six public sector banks (PSBs) with four better performing anchor banks.

This comes as a mega banking realignment by the Narendra Modi government in order to

streamline their operation and size. This is the widest rearrangement of the banking sector since

the nationalisation of 14 banks in July 1969

The Oriental Bank of Commerce (OBC) and the United Bank of India (UBI) have been merged

into the Punjab National Bank (PNB). The PNB will now be the second largest PSU bank after

the State Bank of India, which earlier saw a similar consolidation with all its associates merging

with it. The Syndicate Bank has been merged with the Canara Bank while the Andhra Bank and

Corporation Bank will be merged with the Union Bank of India. Besides this, the Allahabad

Bank will merge into the Indian Bank. This will make it the seventh largest state-owned bank in

India.

With this announcement of merger of banks, the total number of PSU banks will come down to

12. Before 2017, when the government rolled out bank-merger plan, the number of public sector

banks in India was 27. The successful experience of merging State Bank of India with five of its

subsidiaries and Bharatiya Mahila Bank, and the amalgamation of Bank of Baroda, Vijaya Bank

and Dena Bank have given the government confidence that another round of consolidation can

be handled without hiccups.

Parishodh Journal


ISSN NO:2347-6648

Page No:2246

II. OBJECTIVES AND RESEARCH METHODOLOGY:

The study has been geared to achieve the following objectives;

1. To study the financial position of 10 public sector banks with their total business, deposits

and Non-Performing Assets (NPA)

2. To analyse the government’s amalgamation plan of 10 public sector banks into four large

institutions using representative example

3. To study what’s good or not so good in consolidation of public sector banks

4. To study the possible impact of PSBs merger on customers

RESEARCH METHODOLOGY:

This study has been carried out with the help of secondary data only. Data of 18 public banks has

been extracted from the various journals, magazines, newspaper and websites particularly from

Reserve Bank of India (RBI) and Ministry of Finance, GoI. The data till March 2019 has been

taken into consideration for analyse purpose.

III. HISTORY OF MERGERS IN INDIAN BANKING:

Mergers of banks began in India in the 1960s in order to bail out the weaker banks and protect

the customer interests. After that, in post liberalization period the question to create an Indian

bank that would be in the league of global giants had been continuing since 1990. Moving on the

path of creating one of the largest global banks, the government had approved the merger of five

associate banks with SBI in February 2017. Later in March, the Cabinet approved merger of

BMB also.

Merger & Nationalization during the period from 1961-1969: The period is called pre-

nationalization period because in 1969 the government nationalized 14 private banks. As many

as 46 mergers took place mostly of private sector banks in order to revive the poorly performing

banks which proved to be quite a successful move for the underperforming banks.

Parishodh Journal


ISSN NO:2347-6648

Page No:2247

The period from 1969-1991: The period was called post-nationalization period. It saw six

private banks being nationalized in 1980. In this period 13 mergers took place mostly between

public and private sector banks.

The post liberalization period, which stretches from 1991-2015, saw major economic reforms

initiated by Government of India. Many new policies were framed. Greater FDI and foreign

investment was allowed which saw resurgence in Indian Banking. As many as 22 mergers took

place - some to save weaker banks and some for the sake of synergic business growth.

Bank Mergers (1993-2004): The merger of Oriental Bank of Commerce with Global Trust bank

in 2004 saved the latter after its net worth had wiped off and also handed OBC a million

depositors and a decent market in South India. Mergers of Punjab National Bank (PNB) with the

then eroded New Bank of India (NBI) in 1993-94 and that of Benaras State bank Ltd with Bank

of Baroda in 2002 also proved to be life saving for the weaker bank.

Bank Mergers & Consolidation 2008-2010: SBI first merged State Bank of Saurashtra with

itself in 2008. Two years later in 2010, State Bank of Indore was merged with it. The board of

SBI earlier approved the merger plan under which SBBJ shareholders got 28 shares of SBI (Re.1

each) for every 10 shares (Rs10 each) held. Similarly, SBM and SBT shareholders got 22 shares

of SBI for every 10 shares.

Post the merger, the SBI was in the process to rationalize its branch network by relocating some

of the branches to maximize reach. This, according to SBI helped the bank optimize its

operations and improve profitability. SBI had approved separate schemes of acquisition for State

Bank of Patiala and State Bank of Hyderabad. There was no proposal for any share swap or cash

outgo as they were wholly-owned by the SBI.

Consolidation of Banks (2015-2017) – This phase saw five associates of SBI and Bharatiya

Mahila Bank getting merged in SBI. The vision was to have strong banks rather than having

large number of banks. This resulted in SBI being one amongst the 50 largest banks in the world.

Union Cabinet decided to merge all the remaining five associate banks of State Bank Group with

State Bank of India in 2017. After the Parliament passed the merger Bill, the subsidiary

Parishodh Journal


ISSN NO:2347-6648

Page No:2248

banks ceased to exist and the State Bank of India (Subsidiary Banks) Act, 1959 and the State

Bank of Hyderabad Act, 1956 were repealed.

Five associates and the Bharatiya Mahila Bank (BMB) became the part of State Bank of India

(SBI) beginning April 1, 2017. This has placed State Bank of India among the top 50 banks in

the world. The five associate banks that were merged into State Bank of India were- State Bank

of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM),

State Bank of Patiala (SBP) and State Bank of Travancore (SBT). The other two Associate

Banks namely State Bank of Indore and State Bank of Saurashtra had already been merged with

State Bank of India. After the merger, the total customer base of SBI increased to 37 crore with a

branch network of around 24,000 and around 60,000 ATMs across the country.

Merger of Banks 2018- The government had merged Dena Bank and Vijaya Bank with Bank of

Baroda, creating the third-largest bank by loans in the country in 2018.

Mega Merger of Banks 2019- With the mega merger announced on August 30, 2019, ten public

sectors banks will be reduced into four large banks. The four sets of banks are to be created out

of Canara Bank and Syndicate Bank merger; Indian Bank and Allahabad Bank merger; Union

Bank of India, Andhra Bank and Corporation Bank merger; and the bank to be created after

merger of Punjab National Bank, Oriental Bank of Commerce and United Bank of India.

Six Banks Untouched: The mega merger has left untouched six other banks out of which two

are national banks and the four have regional focus. The untouched banks are Bank of India,

Central Bank of India, Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab &

Sind Bank which will continue as separate entities as before.

Punjab National Bank to become 2nd

Largest Bank: Oriental Bank of Commerce and United

Bank merger into Punjab National Bank will create a second largest bank of India after State

Bank of India.

4th

Largest Bank – Merger of Canara Bank & Syndicate Bank: The merger of Syndicate Bank

with Canara Bank will create the fourth largest public sector bank.

Parishodh Journal


ISSN NO:2347-6648

Page No:2249

5th

Largest Bank: Merger of Andhra Bank and Corporation Bank with Union Bank of India will

create India's fifth largest public sector bank.

7th

Largest Bank: The merger of Allahabad Bank with Indian Bank will create the 7th

largest

public sector bank having strong branch networks in the south, north and east of the country.

IV. SNAPSHOT OF CONSOLIDATIONS:

Here is a list based on simple fusion of existing banks into four large ones based on asset size.

Here's a list of the banks that are going to be merged and what this merger means;

BANK 1: Consolidation of Punjab National Bank, Oriental Bank of Commerce and United

Bank

The merged entity would be the 2nd largest PSB with Rs 18 lakh crore business and 2nd largest

network with 11, 437 branches across India.

The merger would lead to a high Current and Savings Account (CASA) ratio and a high lending

capacity. Same Core Banking System (CBS), Finacle, in all three banks would enable quick

resolution of gains.

PNB BANK + ORIENTAL BANK OF COMMERCE + UNITED BANK

PNB Bank OBC Bank United Bank Amalgamated

Bank

Total Business (in Rs. Cr) 11,82,224 4,04,194 2,08,106 17,94,526

Gross Advances (in Rs. Cr) 5,06,194 1,71,549 73,123 7,50,867

KEY

All Data up-to March 2019

1. TOTAL BUSINESS (In Rupees Crore)

2. DEPOSITS (In Rupees Crore)

3. NON-PERFORMING ASSET (In %)

World’s Biggest Bank

The Industrial and Commercial

Bank of China (ICBC, China)

Asset Value $3.62 trillion

Revenue $134.8 billion

Parishodh Journal


ISSN NO:2347-6648

Page No:2250

Deposits (in Rs. Cr) 6,76,030 2,32,645 1,34,983 10,43,659

CASA Ratio 42.16% 29.40% 51.45% 40.52%

Domestic Branches 6,992 2,390 2,055 11,437

PCR 61.72% 56.53% 51.17% 59.59%

CET-I Ratio 6.21% 9.86% 10.14% 7.46%

CRAR Ratio 9.73% 12.73% 13.00% 10.77%

Net NPA Ratio 6.55% 5.93% 8.67% 6.61%

Employees 65,116 21,729 13,804 1,00, 649

Table 1: Consolidation Plan of PNB, OBC and United Bank

Source: Department of Financial services, Ministry of Finance, GoI

BANK 2: Consolidation of Canara& Syndicate Bank

The merged entity will be the fourth largest PSB with Rs 15.2 lakh crore businesses and third

largest network with 10,342 branches. Synergies, culture & common CBS platform to enable

quick realisation of operational gains & enhanced lending capacity

CANARA BANK + SYNDICATE BANK

Canara Bank Syndicate Bank Amalgamated

Bank

Total Business (in Rs. Cr) 10,43,249 4,77,046 15,20,295

Gross Advances (in Rs. Cr) 4,44,216 2,17,149 6,61,365

Deposits (in Rs. Cr) 5,99,033 2,59,897 8,58,930

CASA Ratio 29.18% 32.58% 30.21%

Domestic Branches 6,310 4,032 10,342

PCR 41.48% 48.83% 44.32%

CET-I Ratio 8.31% 9.31% 8.62%

CRAR Ratio 11.90% 14.23% 12.63%

Net NPA Ratio 5.37% 6.16% 5.62%

Employees 58,350 31,535 89,885

Table 2: Consolidation Plan of Canara and Syndicate Bank


Parishodh Journal


ISSN NO:2347-6648

Page No:2251

BANK 3: Consolidation of Union, Andhra & Corporation Banks

The merged entity would be the fifth largest PSB with Rs 14.6 lakh crore businesses and fourth

largest network with 9,609 branches in India. Strong scale benefits to all 3 with business

becoming 2 to 4.5 times that of individual bank.

UNION BANK + ANDHRA BANK + CORPORATION BANK

Union Bank Andhra

Bank

Corporation

Bank

Amalgamate

d Bank

Total Business (in Rs. Cr) 7,41,307 3,98,511 3,19,616 14,59,434

Gross Advances (in Rs. Cr) 3,25,392 1,78,690 1,35,048 6,39,130

Deposits (in Rs. Cr) 4,15,915 2,19,821 1,84,568 8,20,304

CASA Ratio 36.10% 31.39% 31.59% 33.82%

Domestic Branches 4,292 2,885 2,432 9,609

PCR 58.27% 68.62% 66.60% 63.07%

CET-I Ratio 8.02% 8.43% 10.39% 8.63%

CRAR Ratio 11.78% 13.69% 12.30% 12.39%

Net NPA Ratio 6.85% 5.73% 5.71% 6.30%

Employees 37,262 20,346 17,776 75,384

Table 3: Consolidation Plan of Union, Andhra and Corporation Bank


BANK 4: Consolidation of Indian & Allahabad Bank

The merged entity would be the 7th seventh largest PSB with Rs 8.08 lakh crore businesses.

Strong scale benefits to both with business doubling. High CASA & lending capacity combined

in consolidated bank. Out of the 10 banks that the government has decided to merge to create

four, nine have net non-performing assets (NPAs) of over 5%. Only Indian Bank’s net NPA is

below 5%, at 3.75%, as on March 31, 2019.

INDIAN BANK + ALLAHABAD BANK

Indian Bank Allahabad Bank Amalgamated

Parishodh Journal


ISSN NO:2347-6648

Page No:2252

Bank

Total Business (in Rs. Cr) 4,29,972 3,77,887 8,07,859

Gross Advances (in Rs. Cr) 1,87,896 1,63,552 3,51,448

Deposits (in Rs. Cr) 2,42,076 2,14,335 4,56,411

CASA Ratio 34.71% 49.49% 41.65%

Domestic Branches 2,875 3,229 6,104

PCR 49.13% 74.15% 66.21%

CET-I Ratio 10.96% 9.65% 10.36%

CRAR Ratio 13.21% 12.51% 12.89%

Net NPA Ratio 3.75% 5.22% 4.39%

Employees 19,604 23,210 42,814

Table 4: Consolidation Plan of Indian and Allahabad Bank


In place of fragmented lending capacity with 27 PSBs in 2017, now there will be 12 PSBs post

consolidation.

Figure 1: Next Generations PSBs


Parishodh Journal


ISSN NO:2347-6648

Page No:2253

India has 12 Banks Now

The biggest overhaul in public sector banks has left India with only 12 banks now instead of 18

before the decision. According to the Government this decision of making large entities will

make the Indian banks capable of meeting the higher funding needs of the economy and will help

in acquiring the global scale.

Banking order (Largest to Smallest) Business in Lakh of crore

Rupees

Market Share

State Bank of India 52.1 22.5

PNB+ OBC+ United Bank 17.9 7.7

HDFC Bank 17.5 7.6

Bank of Baroda 16.1 7

Canara + Syndicate Bank 15.2 6.6

Union+ Andhra+ Corporation Bank 14.6 6.3

ICICI Bank 12.7 5.5

Axis Bank 10.6 4.6

Bank of India 9.0 3.9

Indian + Allahabad Bank 8.1 3.5

Table 5: List of Total 12 Banks with their Business Size and Market Share

Source: Times of India & Business Standards, 31 August 2019

V. CAPITAL INFUSION:

The government also announced recapitalization to the tune of Rs 55,000 crore (out of Rs 70,000

crore budgeted for 2019-20). The plan for infusing the remaining Rs 15,000 crore into PSBs will

be announced in the next few days. According to the plan, Rs 10,800 crore will be infused in

four banks under the Reserve Bank of India’s PCA — Indian Overseas Bank (Rs 3,800 crore),

Central Bank of India (Rs 3,300 crore), UCO Bank (Rs 2,100 crore) and United Bank of India

(Rs 1,600 crore).

PSBs Capital Infusion (In Rs.)

Parishodh Journal


ISSN NO:2347-6648

Page No:2254

PNB 16,000 Crore

Union Bank of India 11,700 Crore

Bank of Baroda 7,000 Crore

Canara Bank 6,500 Crore

Indian Overseas Bank 3,800 Crore

Central Bank of India 3,300 Crore

UCO Bank 2,100 Crore

United Bank of India 1,600 Crore

Punjab and Sind Bank 750 Crore

Table 6: Capital Infusion Plan of Government in respective PSBs

Source: Times of India, Aug 31, 2019

VI. BOB, DENA BANK AND VIJAYA BANK MERGED TOGETHER ON APRIL 1, 2019

State-run Bank of Baroda has now become India’s second largest public sector bank after its

merger with Dena and Vijaya Bank respectively. The amalgamation of the two lenders with

BOB became effective from 1 April, 2019. This is the first three-way merger of the banks in

India, making the combined geographical reach of 9,490 branches, 13,400 ATMs with 85,678

employees serving 120 million customers.

From April onwards all the branches of Dena and Vijaya Bank started functioning as branches of

Bank of Baroda and the customers of both banks now will be treated as customers of BOB, as

per RBI. In addition to this, the customers will also continue to use the same account number,

IFSC Code, MICR Code along with their current cheque books and ATM cards.

Financial Parameters

Bank of

Baroda (BoB)

Vijaya Bank Dena

Bank

Merged Entity

Total Business (In Cr) 10,29,810 2,79,575 1,72,940 14,82,325

Gross Advances (In Cr) 4,48,330 1,22,350 69920 6,40,600

Deposits (In Cr) 5,81,485 1,57,325 1,03,020 8,41,830

Domestic Branches 5502 2130 1858 9490

Advance Branches 81 57 38 68

Parishodh Journal


ISSN NO:2347-6648

Page No:2255

Deposit Branches 106 74 55 89

Employees 56360 15875 13440 85675

RoA 0.29% 0.32% -2.43% -0.02%

CRAR Capital Ratio 12.13% 13.91% 10% 12.25%

CET-1 Capital Ratio 9.27% 10.35% 8.15% 9.32%

Net NPA 5.40% 4.10% 11.04% 5.71%

CASA Ratio 35.52% 24.91% 39.80% 34.06%

Table 7: Financial Position of BoB, Dena Bank and Vijaya Bank on before and after Merger

Source: Financial Reports of BoB, Dena Bank and Vijaya Bank, March 2019

Gains Visible from Amalgamation of BoB + Vijaya + Dena Bank

Figure 2: Gains Visible from PSB Reforms


The government claimed no retrenchment, or layoffs, had taken place after the merger of Bank

of Baroda, Dena Bank and Vijaya Bank, and that ―the staff has been redeployed and best

practices in each bank have been replicated in others.‖

VII. WHAT’S GOOD OR NOT SO GOOD IN CONSOLIDATION OF PSBs?

Parishodh Journal


ISSN NO:2347-6648

Page No:2256

The merger of PSU banks has its share of merits and demerits. The addition of staff and network

is the effect that can be easily gauged from the impending merger move. What else can emerge

due to the merger? Take a look

Benefits of Merger

Competitive: The consolidation of PSBs helps in strengthening its presence globally,

nationally and regionally.

Capital and Governance: The government's intention is not just to give capital but also give

good governance. Hence, post-consolidation, boards will be given the flexibility to introduce

the chief general manager level as per business needs. They will also recruit chief risk officer

at market-linked compensation to attract the best talent.

Efficiency: It has the potential to reduce operational costs due to the presence of shared

overlapping networks. And this enhanced operational efficiency will reduce the lending costs

of the banks.

Technological Synergy: All merged banks in a particular bucket share common Core

Banking Solutions (CBS) platform synergizing them technologically.

Self-Sufficiency: Larger banks have a better ability to raise resources from the market rather

than relying on State exchequer.

Recovery: The loan tracking mechanism in PSU banks is being improved for the benefit of

customers.

Cost of lending will come down: with less fragmentation, cost structure will come down and

this will help to reduce the interest rate for loans and deposits.

Monitoring: With the number of PSBs coming down after the process of merger – capital

allocation, performance milestones, and monitoring would become easier for the government.

Reduced number of boards: With reduced number of banks, the government can reduce the

number of bank board’s as well.

Parishodh Journal


ISSN NO:2347-6648

Page No:2257

Figure 3: Gains Visible from PSB Reforms


Unlocking potential through Consolidation

As the centre attempts to boost economic growth following a six-year low, this consolidation is

expected to create fewer, and stronger, lenders. This merger is being undertaken in order to

revive and revitalize the banking sector to stay on course for the government’s stated target of

touching $5 trillion as an economy.

Figure 4: Unlocking potential through Consolidation

Parishodh Journal


ISSN NO:2347-6648

Page No:2258

Challenges

Decision Making: The banks that are getting merged are expected to see a slowdown in

decision making at the top level as senior officials of such banks would put all the decisions

on the back-burner and it will lead to a drop in credit delivery in the system.

Geographical Synergy: During the process of merger, the geographical synergy between the

merged banks is somewhat missing. In three of the four merger cases, the merged banks serve

only one specific region of the country.

However, the merger of Allahabad Bank (having a presence in East & North region) with the

Indian Bank (having a presence in South) increases its geographical spread.

Slowdown in Economy: The move is a good one but the timings are not just apt. There

is already a slowdown in the economy, and private consumption and investments are on a

declining trend. Hence, there is a need to lift the economy and increase the credit flow in the

short-term, & this decision will block that credit in the short-term.

Weak Banks: A complex merger with a weaker and under-capitalized PSB would stall the

bank’s recovery efforts as the weaknesses of one bank may get transferred and the merged

entity may become weak.

Important But to Remain under Watch

Mergers are important for the consolidation and expansion purpose that is why in today’s

scenario many private sector banks are genuinely interested in mergers and acquisition. They are

also crucial for Economy as they are most of the times successful in saving weak banks which

fail in meeting expectations.

Merger creates variety of problems which can cause great damage if the process of merging is

not executed properly.

If merging is needed it must be executed in a manner which leads to an environment of trust and

agreement among the people of both the organizations. If people, work culture and vision are

Parishodh Journal


ISSN NO:2347-6648

Page No:2259

blended together nicely, merging will definitely have synergic effects and create a win-win

situation.

VIII. PSU BANK MERGERS: CUSTOMERS OF WHICH BANKS ARE LIKELY TO BE

IMPACTED AND HOW

On 30th

August 2019 the finance minister, Nirmala Sitharaman announced the consolidation of

10 public sector banks into four mega state-owned ones. Retail customers including account

holders of amalgamating banks are likely to get affected.

In a merger, there is an anchor bank and an amalgamating bank or banks, where the latter gets

merged with the former. For instance, in the consolidation that happened in April of 2019, Vijaya

Bank and Dena Bank (amalgamating banks) were merged into Bank of Baroda (the anchor

bank). In effect, the operations of Vijaya Bank and Dena Bank were handed over to Bank of

Baroda. Essentially, retail customers of the amalgamating banks are likely to get directly affected

whereas customers of the anchor bank are not likely to face much change. However,

shareholders of all banks involved in the mergers are bound to be impacted.

The mergers are expected to be complete by the end of the current financial year, say

government officials. As per a news reports last week, Indian Bank expects to complete the

merger with Allahabad Bank by March 31, 2020.

If you are a customer of one or more of the banks being merged, the mergers can have a few

significant implications for you. Here is a look at some of them.

A. Account number, customer IDs likely to change

Customers are likely to get a new account number and customer ID. So customer should make

sure that his email address/physical address and mobile number is updated with the bank so that

they receive official intimations on change of account numbers. Moreover, customers all

accounts will be tagged to a single customer ID.

B. Re-submission of account details for auto-credits/debits

Parishodh Journal


ISSN NO:2347-6648

Page No:2260

Customer would have given his bank account numbers and IFSC codes for various financial

transactions - auto credit of dividends via ECS, auto-credit of salary, auto debit of various

bills/charges etc. Unless these accounts are seamlessly merged into the financial system of the

anchor bank, customer would now be required to change the details of his bank account given for

these purposes.

C. Local branches and ATMs

Customers will have to deal with the branch rationalisation exercise. For instance, existing home

branch could shut shop if the new acquiring entity has its own branch in the same vicinity.

Customer may also get access to a larger number of ATMs in a manner similar to that of a larger

branch network thanks to the combined entity.

D. Borrowers: Deposit, lending rates to be decided by merged entity

The loan rates may change as there may be a change in the composition of deposits and cost of

funds of the combined merged entity.

E. Credit/debit cards

Credit/debit cards issued by the merging banks may have to be exchanged for those of the

merged entity at some stage although the former are likely to remain valid for the interim period

or even longer to ensure no disruption in services.

F. Paperwork

Paperwork and keeping financial trail of fixed deposits made will increase a bit as these will be

transferred into the merged bank.

G. Shareholders

Shareholders of all the publicly listed banks involved in the mergers will be impacted.

Shareholders of amalgamating banks will be allotted shares of the anchor bank in a pre-decided

ratio. How much the respective shareholders will be impacted will be known once the swap

Parishodh Journal


ISSN NO:2347-6648

Page No:2261

ratios are announced. Apart from this, the prices of the shares on the exchanges have already

been impacted when the mergers were announced.

H. Customers will have to update their banking details with entities like the Income Tax

Department, mutual funds, insurance companies, National Pension Scheme, etc, to incorporate

the new account numbers and IFSC codes.

I. Customers might have to fill new instruction forms for SIP and loan EMIs.

CONCLUSION:

Banks would play an important role in making India a $5 trillion economy, for that they needed

more lending capacity so they could provide better services using modern technology.

Consolidation is the way forward. Through the merger of these banks, the bigger

banks would focus on international markets, while middle-level banks would focus on the

national market. The combined entities will control 82 per cent of all public sector banks and 56

per cent of all commercial bank businesses.

Post consolidation, the number of PSU banks will come down from 27 to 12 and this is the right

number of PSU banks to have. The mergers would help in better management of capital.

However, Along with merger the focus should be on adequate reforms in governance and

management of these banks. Members of the All India Bank Employees’ Association staged a

protest here against the Centre’s decision to merge 10 public sector banks into four entities.

Therefore, Government needs to talk with them and resolve their issues.

Parishodh Journal


ISSN NO:2347-6648

Page No:2262

REFERENCES:

1. Adhana, D.K., Saxena, M. (2016). Big Is Beautiful: A Study of Amalgamation Plan Of

27 Public Sector Bank Into 6 Large Institutions. International Journal of Research in

Finance and Marketing (IJRFM), 6(9), 113-127.

2. https://economictimes.indiatimes.com/news/economy/policy/nirmala-sitharaman-

announces-fresh-reforms-special-agencies-to-monitor-loans-above-rs-250-crore-to-avert-

another-nirav-modi-like-situation/articleshow/70909169.cms

3. https://www.businesstoday.in/opinion/perspective/public-sector-banks-merger-

challenges-bank-of-baroda-dena-bank-vijaya-bank/story/352520.html

4. https://economictimes.indiatimes.com/industry/banking/finance/banking/a-new-voyage-

with-bank-mergers-sail-on-rough-seas/articleshow/70969407.cms

5. https://testbook.com/blog/pnb-and-bank-of-baroda/

6. https://economictimes.indiatimes.com/industry/banking/finance/banking/round-2-of-

psbs-merger-pnb-union-bank-boi-may-get-a-call/articleshow/69103771.cms

7. https://www.business-standard.com/article/finance/nextgen-psbs-government-unveils-

mega-bank-mergers-to-revive-growth-119083001668_1.html

8. https://economictimes.indiatimes.com/industry/banking/finance/banking/nextgen-psbs-

which-bank-merged-with-whom-and-whats-the-impact/articleshow/70910213.cms

9. https://timesofindia.indiatimes.com/business/india-business/big-bank-theory-10-psbs-

merged-into-4-large-entities/articleshow/70918278.cms

10. Annual Report 2018-19 of all 18 PSBs

11. Press Notes of PIB

Newspaper:

Times of India, 31 August 2019 Hindustan Times, 31 August 2019

The Hindu, 31 August 2019 Business Standards 31 August 2019

Parishodh Journal


ISSN NO:2347-6648

Page No:2263

Parishodh Journal · announced merger of six public sector banks (PSBs) with four better performing...

Documents

Transcript of Parishodh Journal · announced merger of six public sector banks (PSBs) with four better performing...