Merger of the 10 Public Sector Banks
In a slew of measures announced by the Finance Minister of India, Nirmala Sitharaman on 30th August, 2019, to take the country out of economic doldrums, one particular step of the government has stood out. This was the planned merger of 10 public sectors into 4 banks. The anchor banks for this merger will be the Punjab National Bank, the Canara Bank, the Union Bank of India and the Indian Bank.
Which banks are being merged?
The Indian Government has decided to merge-
- the Indian Bank will be merged with Allahabad Bank (anchor bank – Indian Bank).
- the Punjab National Bank will be merged with the Oriental Bank of Commerce and the United Bank (anchor bank -PNB).
- the Union Bank of India will be merged with the Andhra Bank and Corporation Bank (anchor bank – Union Bank of India).
- the Canara Bank will be merged with the Syndicate Bank (anchor bank – Canara Bank).
After this latest round of consolidation, India will now have 12 Public Sector Banks instead of the earlier 27 (2017).
What changes now?
The merger of the Punjab National Bank with the Oriental Bank of Commerce and United Bank of India will create the second largest public sector bank in India by the balance sheet. The merged entity will also have over 11,437 branches, which is only lesser than the largest government bank of India, the State Bank of India.
The State Bank of India has over 24000 branches in the country and in abroad.
The merger of the Canara Bank along with the Syndicate Bank and the merger of the Union Bank of India with the Andhra Bank & Corporation Bank will create the 4th & 5th largest public sector banks in India.
Why were the Banks merged?
The Indian Government believes that a larger bank will be resilient in weathering the adverse economic climate. A larger bank also has a larger corpus to dole out and this will improve the banks’ ability to lend to large projects, primarily in the infrastructure & the power sector.
The Government believes that the larger banks will be able to compete better globally and would also be able to increase their economic efficiency by eliminating similar jobs & reduce the costs for lending.
How did the Indian Government decide which bank to merge with which bank?
The Indian Government performed a comprehensive survey which evaluated the geographical spread of the banks, their balance sheets, their core competencies and their future prospects, following which the decision was taken to merge 1-2 ailing banks with a relatively better performing bank.
The Government also gave special consideration to the fact that the merging banks were using similar application & banking software to ensure that no technical or human disruption is observed during the merger procedure.
What does the future hold for the banks of India?
The Indian Government is of the belief that of the merged banks, the Punjab National Bank, the Canara Bank, the Indian Bank and the Union Bank of India should have global aspirations and further improve their competencies to better compete at the global level.
As for the other banks while State Bank of India & Bank of Baroda will be motivated to go global, Bank of India along with the Central Bank of India will be asked to expand their nation reach.
The other remaining banks which are the Indian Overseas Bank, the UCO Bank, the Punjab & Sindh Bank and the Bank of Maharashtra will be asked to focus on their niche geographical region.
This will allow the Indian Government to have an equitable approach towards it social and fiducial obligations via the government owned banks of India.
Will there be job losses?
While the Indian Government has assured that no retrenchment of the existing employees will take place and they will continue to draw existing benefits, it is highly unlikely that the banks would be able to continue recruiting at existing levels. The merger of two corporations is bound to make some positions redundant as it is only prudent that the merged entity will shut shown some departments with an overlapping work profile and for competing departments, only the fittest will survive.
This will lead to a fall in the number of posts at the mid management and the top management which would further increase the competition for employee’s growth.
Any other reform initiated?
The board of the banks will need to perform an appraisal of the performance of all senior officers of the bank from the General Manager level to that of the Managing Director. This will make the management more accountable to the board.
The Indian Government has allowed the new boards of the consolidated banks the leeway to introduce or designate posts at chief general manager (CGM) level as per their business needs. The banks will also need to recruit a new chief risk officer. They are allowed to pay the best market linked compensation which will allow them to attract the best talent on the free market.
Why are the bank board reforms necessary?
The reforms made in the boards of the bank, while small, aim to improve the efficiency of the boards and make them leaner & more adaptable to the present times. These reforms will improve the efficiency and accountability of the bank boards.
Are big banks better?
Yes and No. While a larger bank is more laden with capital, personnel and expertise to handle a severe fiscal challenge, historical evidence has shown that the larger banks are more prone to acting in direct conflict with the established principles of conventional human, social and legal responsibilities. Larger banks have more lobbying power and a greater say in national law making which enables them to get laws passed which are beneficial for them. However, there is no guarantee that such laws are beneficial for the general populace.
Some banks, which become too large and cater to the significant section of the population, become too big to fail and it becomes a concern for the Governments globally to ensure that such banks do not fail as their failure would have a catastrophic impact on the world markets.
Topics: Bank of Baroda • Banking • Canara Bank • Central bank • Central Bank of India • Economy of India • Financial services • Indian Economy • Mega Merger of Banks • National bank • Public Sector Banks • Public Sector Banks in India • State Bank of India • Syndicate Bank