Another wave of bank mergers announced

NEW DELHI: In less than five months since the successful merger of Vijaya Bank and Dena Bank with Bank of Baroda (BoB) on April 1, the Finance Minister Nirmala Sitharaman on Friday (August 30) embarked on a much larger second wave of public sector banks (PSBs) merger that will see six banks getting knocked off the list of public sector banks in the country –  from 18 to 12.

While Punjab National Bank, Oriental Bank of Commerce and United Bank will be combined to form the country’s second largest bank, Canara Bank and Syndicate Bank will be merged to make the fourth largest bank, Union Bank, Andhra Bank and Corporation Bank will be joined to form the fifth largest bank, whereas Indian Bank and Allahabad Bank will join together to create the 7th largest bank in the country.

It all started with the much debated merger of the country’s largest bank, State Bank of India (SBI) with its five associate banks in April, 2017 to create a banking monolith with an asset base of Rs32 trillion (as of April 1, 2017).

The finance minister said the consolidated PSBs will seek to make strong national presence and global reach with a control of 82 per cent of PSB business and 56 per cent of total commercial banks’ business in the country.

On a different note, the finance minister said 10 PSBs will be getting a total amount of Rs55,250 crore irrespective of the upfront  Rs70,000 crore announced for capitalisation earlier, with PNB and Union Bank standing to pocket the biggest slice at Rs16,000 crore and Rs11,700 crore each respectively.

The FM while explaining the basis of the new set of mergers said that priority was extended to the compatibility of their technology platforms as the foremost reason above any other considerations.

Stating that the new round amalgamations will bring in cost efficiencies with regard to operations as the move will help branch rationalisation, FM said, “We want to create big banks with strong national and global presence…the major thrust has been on ‘next gen’ technology features.”

She also said the government has given a lot of mind application into the fact that the integration of fintech operations involved in the merger process will be such that there will be no disruption to customers.
“The merged entities would have a high CASA and lending capabilities, and cost cutting capacity would be realised with those branches that are overlapping,” Sitharaman said. “The scaling up and reduction in cost of operations will result in reduced lending costs as well.”

 

 

 

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