The GoI has decided to amalgamate 10 Public Sector Banks(PSB) into 4 ‘Mega Banks’ from 1st April 2020.
The Mega Merger
The United Bank of India and Oriental Bank of Commerce will be merged into Punjab National Bank making it the second-largest public-sector bank in the country after State Bank of India.
Syndicate bank with Canara Bank making it the fourth largest public-sector lender in the country.
Indian Bank with Allahabad Bank.
Union Bank of India with Andhra and Corporation Bank.
After the merger, there will be six merged and six independent public sector banks.
- Six merged banks– State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India, Indian Bank.
- Six Independent banks– Central Bank of India, Punjab and Sind Bank, Indian Overseas Bank, UCO Bank, Bank of Maharashtra, Bank Of India.
Reasons For Merger of Public sector banks
To Decrease the competition between Public sector banks dealing with the same consumer base and services.
The merger of banks will increase the size of banks which could increase their strength to compete globally.
The merger of public sector banks will increase the strength and capability of the banks to respond better to emerging market trends and can compete in an efficient way with private banks.
The operational efficiency of the banks increases once they lower the cost of lending and improve lending.
If the number of banks is less then it can be efficiently managed to ensure optimal use of capital, increased customer base, and greater profitability.
- Increase the income from services
- Return on equity will increase because of the decrease in capital
- Increase staff costs
- Improved lending policies result in higher profits
Concerns About Merger
The merger could bring in some operational risks such as resistance shown by the staff and unions to perform their duties.
The merger of public sector banks does not solve the structural issues in the banking system and the problems still continue to persist.
The merger could lead to deterioration of services provided by the involved banks in the near term as the process gets underway.