Ten public sector banks to merge into 4 from 1 April

A meeting of the union cabinet, chaired by the Prime Minister Narendra Modi, approved the amalgamation of Oriental Bank of Commerce and United Bank of India with Punjab National Bank; Syndicate Bank with Canara Bank; Andhra Bank and Corporation Bank with Union Bank of India; and that of Allahabad Bank with Indian Bank.

The amalgamation would be effective from 1 April 2020 and would result in creation of seven large PSBs with scale and national reach with each amalgamated entity having a business of over Rs8,00,000 crore. The mega consolidation would help create banks with scale comparable to global banks and capable of competing effectively in India and globally. Greater scale and synergy through consolidation would lead to cost benefits which should enable the PSBs enhance their competitiveness and positively impact the Indian banking system, says a cabinet release.

In addition, consolidation would also provide impetus to amalgamated entities by increasing their ability to support larger ticket-size lending and have competitive operations by virtue of greater financial capacity. The adoption of best practices across amalgamating entities would enable the banks improve their cost efficiency and risk management, and also boost the goal of financial inclusion through wider reach.

Further, with the adoption of technologies across the amalgamating banks, access to a wider talent pool, and a larger database, PSBs would be in a position to gain competitive advantage by leveraging analytics in a rapidly digitalising banking landscape, the release added. 

“The amalgamation is being done so that customers are able to reap the benefit of larger banks being scaled up and more fund being available for credit," finance minister Nirmala Sitharaman told reporters.

“Banks are fully on board and this will be effective from 1 April," Sitharaman said, adding, “To a large extent, I am convinced that the banks are on course. They have no issues carrying forward with the merger activity…core interest for banking, customers have been kept in mind."

At present, India has 18 state-owned banks compared with 27 in 2017. After the merger, the number will further come down to 12.

The finance ministry’s decision is in line with the National Democratic Alliance government’s push for consolidation of state-owned banks, which it believes will not only lead to economies of scale, but also make lenders stronger, more competitive, and improve their risk-taking appetite.

Last August, the finance ministry announced the consolidation of 10 public sector lenders. Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank will be brought together to form the second largest public sector bank in the country, after State Bank of India (SBI).

Canara Bank and Syndicate Bank will merge to become the fourth-largest public sector lender, while Union Bank of India will merge with Andhra Bank and Corporation Bank to build India’s fifth-largest lender. Indian Bank will merge with Allahabad Bank to make India’s seventh-largest PSB.

“For existing customers of all the amalgamating banks, this will increase access to banking services by about 3,000 branches or more. In addition, customers will benefit through investments in technology-enabled smart banking, such as paperless tab-banking, faster loan processing, banking from home, and customer-need driven credit offers," a senior government official said, requesting anonymity.

Businesses will benefit through increased lending capacity, with the regulatory ceiling for lending to individual borrowers increasing by more than Rs1,500 crore to Rs3,000 crore, he added.

In April 2019, Bank of Baroda (BoB) became the country’s third largest lender after its merger with Dena Bank and Vijaya Bank. In 2017, five associate banks and Bharatiya Mahila Bank had merged with SBI.