FINANCIAL DISRUPTION-BANKING MERGER IN INDIA-WHAT, HOW, WHEN AND WHY-PART 1
On August 30 2019, the mega merger of banks was announced. With this mega merger ten public sectors banks will be reduced into four large banks. The four sets of banks are to be created out of Canara Bank and Syndicate Bank merger; Indian Bank and Allahabad Bank merger; Union Bank of India, Andhra Bank and Corporation Bank merger; and the bank to be created after merger of Punjab National Bank, Oriental Bank of Commerce and United Bank of India. The main focus of this crucial step is with an aim to have financially strong Public sector banks in India, the Finance Minister of India Nirmala Sitharaman has outlined the Government’s plan to merge 10 public sector banks into four large banks. After the mergers, there will be 12 public sector banks in India, including State Bank of India and Bank of Baroda. The merger is expected to create fewer and stronger global-sized Banks to boost economic growth. A strong economy is judged by the quality of the banking sector in the country; this step can strengthen the economy, or is it?
Mega Merger-At a glance
- Punjab National Bank to become 2nd Largest Bank: Oriental Bank of Commerce and United Bank merger into Punjab National Bank will create a bank with 17.95 Lakh crore business and 11,437 branches.
- 4th Largest Bank – Merger of Canara Bank & Syndicate Bank: The merger of Syndicate Bank with Canara Bank will create the fourth largest public sector bank with 15.20 Lakh crore businesses and a branch network of 10,324.
- 5th Largest Bank: Merger of Andhra Bank and Corporation Bank with Union Bank of India will create India's fifth largest public sector bank with 14.59 Lakh crore business and 9,609 branches.
- 7th Largest Bank: The merger of Allahabad Bank with Indian Bank will create the seventh largest public sector bank with 8.08 Lakh crore business having strong branch networks in the south, north and east of the country
In total, there will be Rs. 55000 crore recapitalization; the biggest overhaul in public sector banks has left India with only 12 banks now instead of 18 before the decision.
Advantageous points due to Mega Merger
- Larger Bank is capable of facing global competition
- The merger will reduce the cost of banking operation
- Merger will result in better NPA and Risk management
- Merger will help in improving the professional standards
- Decisions on High Lending requirements can be taken promptly
- Minimization of overall risk is there due to mergers and acquisitions which is always good from the business point of view. Leads to increase in profitability and helps in raising the standard of living which is absolutely crucial for a growing economy like India.
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