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Modi government mega bank merger drive Now there will be only 12 PSU banks

Modi government mega bank merger drive Now there will be only 12 PSU banks

Modi government mega bank merger drive: Now there will be only 12 PSU banks

Highlights

•    Canara Bank and Syndicate Bank are going to be merged; Union Bank, Andhra Bank, and Corporate Bank are going to be merged.

•    Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank of India to be merged; Indian Bank and Allahabad Bank are going to be merged.

10 public sector banks to be merged into four

The Finance Minister, Nirmala Sitharaman, had recently made announcement of a big consolidation of public sector banks; which is that ten public sector banks are going to be merged into four. Under the scheme of merger, Indian Bank shall be merged with Allahabad Bank (anchor bank - Indian Bank); PNB, OBC and United Bank is going to be merged (PNB shall be the anchor bank); Union Bank of India, Andhra Bank, and Corporation Bank is going to be merged (anchor bank - Union Bank of India); and Canara Bank and Syndicate Bank shall be merged (anchor bank - Canara Bank). Instead of 27 public sector banks in 2017, now there would be 12 public sector banks after the latest round of consolidation of PSU banks.

The Oriental Bank of Commerce (OBC), as well as the United Bank of India (UBI), is going to be merged into the Punjab National Bank (PNB). The PNB would now be the 2nd largest PSU bank after the State Bank of India, which earlier witnessed a similar consolidation with all its associates merging with it.

The Syndicate Bank is going to be merged with the Canara Bank while the Andhra Bank and Corporation Bank shall be merged with the Union Bank of India.

Apart from this, the Allahabad Bank would be merged into the Indian Bank. This is going to make it the 7th largest state-owned bank in India.

The reasons for the merger

Nirmala Sitharaman, by explaining the reason behind these mergers, stated that these decisions have been taken with the objective of making them "global-sized banks". She also stated that the merger would help in consolidating strong national presence as well as the global reach of these banks.

Last year, the government had sanctioned the merger of Vijaya Bank and Dena Bank with Bank of Baroda (BoB) that become effective from 1st April 2019. In the year 2017, the State Bank of India absorbed 5 of its associates and the Bharatiya Mahila Bank.

The new picture of PSU Banks

•    After the Oriental Bank of Commerce and United Bank are merged into the Punjab National Bank, it would become India's 2nd largest bank. (SBI remains India's largest bank).

•    After the Syndicate bank is merged into the Canara Bank, the resultant bank would become India's 4th largest public sector bank.

•    Union Bank, Andhra Bank, Corporation Bank after getting merged would become India's 5th largest public sector bank.

•    The 12 public sector banks that India would have after all merger decision are: State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Central Bank of India, Canara Bank, Union Bank of India, Indian Overseas Bank, Punjab and Sind Bank, Indian Bank, UCO Bank and Bank of Maharashtra.

How the general account holders are likely to be impacted:

•    The account holders must be ready to change their checkbooks as the various banks get merged. Though the existing cheque books might remain valid for some time, ultimately they would be replaced with the checkbooks of the merged bank.

•    The account holders are given bank account numbers and IFSC codes for various financial transactions; auto credit of dividends by means of ECS, auto-credit of salary, auto-debit of various bills or charges, etc. Unless these accounts are flawlessly merged into the financial system of the newly merged bank, account holders would be required to change the details of the bank given for these purposes. Prior to these, when 5 associate banks of State Bank of India (SBI) have been merged, IFSC codes and names of 1,300 branches were also changed. Those account holders who had auto-debits running with these banks like systematic investment plans (SIPs) in mutual funds were also been impacted. This can be a concern for the account holders of the banks that would be merged now may face.

•    Credit/debit cards issued through the merging banks might have to be exchanged for those of the merged bank; even though the former are likely to remain valid for the temporary period to make certain no disruption in services.

•    Paperwork as well as keeping financial trail of fixed deposits made would increase a bit as these shall be transferred into the merged bank.

•    It is still not clear what would happen to the interest rates of those who have loans running with these banks as the MCLR rates are dissimilar for different banks.

•    Shareholders of the publicly listed banks would be impacted. How much the respective shareholders would be impacted shall be known once the swap ratios are announced.

•    However, the branch network will become larger so access to bank branches will become easier provided the merged entity doesn’t shut down all branches of merging banks.

•    There is a section of account holders who would not be impacted through these mergers. Sitharaman stated that Bank of India, Central Bank of India would continue as is. Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sindh Bank would also continue to operate as-is.

Conclusion 

Sitharaman stated that these mergers are intended at incorporating the best practices of all the individual banks in the merged entity. She also added that this will also give them broader branch networks. However there might be few shifts as well as changes for customers to contend within the short term, the mergers are intended at providing a consolidated as well as strengthened PSB network in the nation.

Author:

eStartIndia Team



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