Government announced consolidation of state owned banks that will see 10 banks being merged to form four bigger lenders to strengthen a sector struggling with a bad loans and aimed at creating lenders of global scale that can support the economy’s surge to $5 trillion by 2024. After the mergers, the country will have 12 public sector banks.
Which banks do the mergers include?
- Punjab National Bank, Oriental Bank of Commerce and United Bank of India will combine to form the nation’s second-largest lender.
- Canara Bank and Syndicate Bank will merge.
- Union Bank of India will amalgamate with Andhra Bank and Corporation Bank.
- Indian Bank will merge with Allahabad Bank.
Who does it benefit and how?
For banks-
- Opportunity for small banks to gear up to the International level with innovative products and services
- Can expand their coverage
- Consolidation helps improve standards
- Ends unhealthy competition among public sector banks
- In the global market, Indian banks will gain recognition and higher ratings
- Reduction in interference by board members
For economy
- Reduction in the cost of business
- Technical inefficiency reduces.
- The size of each business entity after merger is expected to add strength to the Indian Banking System in general and Public Sector Banks in particular.
- After merger, Indian Banks can manage their liquidity – short as well as long term.
- Synergy of operations and scale of economy in the new entity gives greater profits.
- Many posts of CMD, ED, GM and Zonal Managers will be abolished, saving money.
- Customers will have access to fewer banks offering them wider range of products at a lower cost.
For government:
- The burden on the central government to recapitalize the public sector banks will lessen.
- From regulatory perspective, monitoring and control of less number of banks will be easier.
Downside of mergers -
- Problems to adjust top leadership in institutions and unions.
- Mergers will result in shifting/closure of many ATMs, Branches and controlling offices, as it is not economical
- Will result in immediate job losses due to many people taking VRS on one side and slow down further recruitment on the other.
- Clash of different organizational cultures and create conflict.
- When a big bank crumbles, the entire banking industry will face a big hit and face repercussions.
