News

GOVT ANNOUNCES MEGA MERGER OF PUBLIC SECTOR BANKS

Written by Talent KAS

Related Topics: Banking Sector Reforms, Narasimham Committee Report

Why in News

  • As a part of government’s efforts to revive the economy, Finance Minister announced a slew of banking reform measures, including merger of 10 public sector banks into four entities.
  • After merger of banks, the country will have 12 public sector banks instead of 27 in 2017.

Banks to be merged

A. Punjab National Bank with Oriental Bank of Commerce and United Bank

  • The amalgamated entity — to be called Punjab National Bank — will become the second-largest public sector bank in India, after the State Bank of India.
  • It will also become the second-largest bank in India in terms of its branch network, with a combined total of 11,437 branches.

B. Canara Bank and Syndicate Bank

  • It would render the merged entity the fourth-largest public sector
  • The merger has the potential to lead to large cost reductions due to network overlaps.
  • Similar business cultures of the two banks would also facilitate a smooth transition.

C. Union Bank of India with Andhra Bank and Corporation Bank

  • It would make the merged entity the fifth largest public sector bank.
  • This merger would have the potential to increase the post-merger bank’s business by 2-4.5 times.

D. Indian Bank and Allahabad Bank

  • The merger would lead to a doubling of the size of the business.
  • It would also lead to a huge potential for scaling up due to the complementary networks of the two banks.

Global, National and Regional Focus

  • Following the mergers, the country will have a total of 12 public sector banks.
  • Punjab National Bank, Canara Bank, Union Bank of India, Indian Bank, State Bank of India, and Bank of Baroda will be able to compete at a global level.
  • Bank of India and Central Bank of India will be able to expand their national presences.
  • Indian Overseas Bank, UCO Bank, Bank of Maharashtra, and Punjab and Sind Bank will be able to strengthen their regional focus.

Why Merging Banks?

  • It will lead to the creation of big banks with an enhanced capacity to give credit.
  • These big banks would also be able to compete globally and increase their operational efficiency by reducing their cost of lending.
  • Bigger banks would also be able to adhere to BASEL III
  • Amalgamation is the “best route” to scale up banking sector operations and to support the target of achieving a $5 trillion economic size for India in five years.

Background

  • 5 associate banks of SBI (State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Mysore and State Bank of Patiala) and Bharatiya Mahila Bank were merged with SBI in April, 2017.
  • Last year, the government had approved the merger of Vijaya Bank and Dena Bank with Bank of Baroda (BoB) that became effective from April 1, 2019.

[Sources: PIB, The Hindu, Indian Express]

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Talent KAS

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