Merger of 10 Public Sector Banks(PSBs) into 4 entities, Basis, Issues, Recapitalization

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Merger of 10 Public Sector banks (PSBs) into 4 Entities

Honorable Finance Minister, Nirmala Sitharaman announced on Friday, August 30, 2019 that 10 Public Sector Banks would be merged. After merger total number of PSBs in India would become 12.

Why it has been done?

According to Finance Minister-
  • It would lead to the creation of big banks after merger with enhanced capacity to give credits or loans.
  • These banks would be able to compete globally and increase their operational efficiency by reducing their cost of lending.
  • It will lead to large reduction in cost due to network overlaps.

This merger has been done on the basis of ensuring that:

  • There is no disruption in banking services, because the banks which are being merged with each other have the same or very similar platform and working environment or business culture.
  • The banks should benefit from the increased CASA(Current Account Saving Account), because a higher CASA ratio means higher portion of deposits of bank comes from the current and saving deposit, which is generally cheaper source of fund.
  • Greater Reach. Like the merger of Indian Bank and Allahabad Bank which would cover all parts of India because former is present in South and West whereas later in North and East.

Merger or Amalgamation:

  1. Punjab National Bank
    • It consists of Three Banks which are Punjab National Bank, Oriental Bank of Commerce and United Bank.
    • It is the Largest merger.
    • This will become Second Largest PSB in India in terms of its branch network after State Bank of India.
  2. Canara Bank
    • It consists of Two banks, Canara Bank and Syndicate Bank.
    • It would be 4th Largest PSB.
  3. Union Bank of India
    • It consists of Three banks which are Union Bank of India, Andhra Bank and Corporation Bank.
    • It would be 5th Largest PSB.
  4. Indian Bank
    • It consists of two banks Indian Bank and Allahabad Bank.
    • There is a huge potential in this merger because of complementary networks or area of two banks. Now it would cover all parts of India because Current presence of Indian Bank is South and West and For Allahabad Bank it is North and East.
    • "Merger of these two banks would be same because of their same technology Platform" , Said top Indian Bank official.
Source:The Hindu

Till now Government did not give the date by which these merger are to be completed, as "that decision will be taken following further consolidation with the relevant bnks", Said FM.

Major Issues

  • Synchronization or integration of Human Resources(HR) and Information Technology(IT).
  • Branch Rationalization as it has potential to decrease operating efficiency.
  • Realigning NPAs.

The All India Employees' Association(AIBEA) has urged the Centre to merge 10 PSBs

  • C.H. Venkatachalam, general secretary, AIBEA said that there is need of finding solution to come out of the economic crisis rather than experimenting with anything.
  • According to him, merger would
    • Lead to closure of large number of branches as in case of SBI.
    • Reduce employment opportunities.
"Merger process is expected to be completed by March 31, 2020", Said R.A. Sankara Narayanam, MD and CEO, Canara Bank. "In this merger Process Integration of Human Resources and information technology are the major issues for successful merger", He said.

Recapitalisaion of banks

As government is committed to robust its banking sector, it has announced Manu Plans for the same. In those plans one of them is recapitalization or infusion of many into these banks. As of now government has only provided the approximate allocation breakup for ₹ 55000 crore of ₹70000 crore promised in the budget. "Final figure for the allocation would be decided after consultation with banks themselves and this amount would be used as growth capital and to increase credit outflow", She said. In this recapitalization process Punjab National Bank got the highest share of ₹16000 crore.
Source: The Hindu

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