10 banks merged to form four large entities

Wednesday 04th September 2019 05:33 EDT

In a mega merger, 10 public sector banks have been merged to form four large entities, capable of meeting the higher funding requirements of the economy and acquiring global scale. The government, after 50 years of nationalisation of banks, unveiled the biggest overhaul in the public sector space, a week after announcing a slew of measures to boost consumer and investment confidence. Terming the move as ‘Building NextGen Banks,’ union finance minister Nirmala Sitharaman said that from this consolidation will emerge big banks with enhanced capacity, strong national presence and global reach.

According to Sitharaman, Canara Bank and Syndicate Bank will be merged into one entity which will make the fourth-largest bank, with Rs 15.2 trillion business. While Union Bank of India, Andhra Bank and Corporation Bank will be amalgamated into a single entity to build India’s fifth-largest public sector bank with Rs 14.59 trillion in business. Similarly, Indian Bank and Allahabad Bank will become one entity to make India’s seventh-largest PSB with a business of Rs 8.08 trillion. The Finance Minister further said that the Bank of India and Central Bank of India would remain independent. Following the consolidation, the country will be left with 12 public sector banks, instead of 18 at present, with the merged entity comprising Punjab National Bank, Oriental Bank of Commerce and United Bank of India becoming the second largest lender after SBI.

“Twelve solidly present, well-consolidated, energised, adequately capital endowed banks will now operate... Banks with a strong national presence and global reach is what we want,” Sitharaman said. She also announced the contours of a £5.5 billion 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.

No job cuts

While announcing the amalgamation, the government assured that there would be no job loss. 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.

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 currently the country’s second largest public sector bank.

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