InvestorQ : I just saw the news about the big series of bank mergers announced by Finance Minister. Is it true that 10 banks will become just 4 banks now? What are the implications?
sara Kunju made post

I just saw the news about the big series of bank mergers announced by Finance Minister. Is it true that 10 banks will become just 4 banks now? What are the implications?

Answer
image
2 years ago
Follow

You are right but actually the merger is much bigger. The merger will actually reduce the total number of banks from 27 in the year 2017 to just 12 in 2019. The merger will offer a few key benefits. Firstly, it will give balance sheet size and that will make these banks more competitive. Secondly, there is a lot of duplication of activity and India did not require so many PSU banks. Merging is the right option as it will help to save cost on manpower, office space and in shared administrative services. But more importantly, these banks can now have a centralized treasury with a much bigger corpus giving them greater bargaining power in the current market situation. Here are the key announces on the bank merger.

· The merger will cut the total number of state owned banks from 27 to 12 after the completion of this merger. This was a process that began with SBI subsidiaries being merged into SBI and also the famous merger of BOB with Vijaya Bank.

· This move will be largely instrumental in cleaning up the banking sector and reduce the number of state-run banks to a manageable level. This will adequately prepare these banks to take on the competition from private and foreign banks. Here are some of the key mergers.

· To begin with, Oriental Bank of Commerce (OBC) and United Bank (UBI) would be merged into Punjab National Bank to create India's second largest lender after State Bank of India. This will overtake the merger BOB entity.

· Two major banks in the state of Karnataka with a strong South Indian presence; Canara Bank and Syndicate Bank will be amalgamated into a single entity. This will give them deeper penetration in South and a pan-India presence.

· In another major merger, the Hyderabad based Andhra Bank and the Mangalore based Corporation Bank are to merge with Union Bank. At the same time, the profitable Indian Bank based in Chennai will merge with Allahabad Bank, which is based out of Kolkata.

Essentially, it was a delicate task since the FM had to ensure that there was no cross subsidy since all these were listed banks with public shareholders. With this merger, there are only 10 large PSU banks left in India. This rapid consolidation is already being objected by unions but it should help to improve cost efficiencies, rationalize costs and networks and let these banks invest in more into technology driven banking.
20 Views