The central government on Friday announced the biggest merger in the public sector banks announced by out finance minister Nirmala Sitharaman unfurling a mega merge in 10 state level banks into four large banks, capable of meeting the higher funding requirements of the economy and acquiring global scale.
After the merger of the public sector banks India will now have 12 public sector banks, instead of 18 at present, with the merged banks Punjab National Bank, Oriental Bank of Commerce and United Bank of India becoming the second largest lending banks after SBI.
The merger of Canara Bank and Syndicate Bank will create the fifth largest bank, with the Union Bank, Andhra Bank and Corporation Bank amalgamation at number six, based on business at the end of March 2019.
In 2017, there were 27 public sector banks, including IDBI, where LIC is now the majority shareholder. Banks with a strong national presence and global reach is what we want,” Sitharaman said.
She also announced the contours of a Rs 55,000-crore recapitalisation plan for the entities that are to be merged as well as the six — Bank of India, Central Bank, Punjab & Sind Bank, Indian Overseas Bank, Bank of Maharashtra and Uco Bank — which are not part of the consolidation plan.
Banks told to ensure no disruption in activities
The merger of Canara Bank and Syndicate Bank will create the fifth largest lender, with Union Bank, Andhra Bank and Corporation Bank amalgamation at number six, based on business at the end of March 2019.
Sitharaman’s second announcement in as many weeks comes at a time when the economy has slumped to its slowest pace in 25 quarters, prompting the government to unleash measures to speed up economic activity.
While bank consolidation has been on the agenda for over a decade, governments had dithered on moving ahead with it, fearing a backlash from the unions, which have lost teeth in recent years. Since coming to power five years ago, the Modi administration completed the merger of SBI associates with the parent, while merging Bank of Baroda, Dena Bank and Vijaya Bank earlier this year to create what is current the country’s second largest public sector bank.
The entire exercise was delayed as the state-run banks had seen massive loan impairment due to corporate defaults, pushing several of them into losses. While there were only four profitable public sector banks in the fourth quarter of 2018-19, 14 are now in the black.
While announcing the biggest amalgamation exercise so far, the government said banks have been asked to ensure that there is no disruption of banking activity and loan flow to the economy is not impacted. “This is exactly the right time to do it. It will not cause any disruption, we will draw upon the experience of the BoB merger,” finance secretary Rajiv Kumar said.
He also assured employees that there will be no retrenchment post-merger. Bankers, however, fear that they may be transferred to another part of the country as branch rationalisation is a certainty given that several urban centres have several branches at the same location.
All this is expected to play out only after a year or so as the process is expected to be time consuming. Over the next few days, boards of public sector banks will create the alliance proposal, which will be followed by consultations with the Reserve Bank of India. Then, the detailed merger arrangement will be worked out before regulatory clearances and board and government approvals are received.