Banking Merger in India: Meaning and Benefits
In the month of August 2019, the Finance Minister of India MS. Nirmala Sitharaman has announced to merged 10 Public Sector Banks into four entities. The basic logic behind this merger is to increase the global competitiveness of the Indian banks. Now the total Public Sector Banks reduced to 12 from 27 in 2017 in India.
Before analyzing the merger of the 10 banks; we need to know the meaning of the merger to understand the topic easily.
Meaning of Merger;
The merger is the process by which two or more companies decide to come together and merge together and created a new company often with a new name rather than remain separately owned and operated.
The merger helps in reducing the weakness and get a competitive edge in the market. In the merger process, the merging companies share information related to debt, resources, technology, and assets, etc. With each other.
Now we are in the position to know all four mergers separately;
Merger Number 1: PNB+OBC+UBI
Oriental Bank of Commerce (OBC) and United Bank of India (UBI) are merged with the Punjab National Bank (PNB). So after this merger now the PNB will be the second-largest Public Sector Banks of India after the State Bank of India in terms of the branch network. Its total branches would be 11,437 and the total Business of the PNB would be Rs. 17.95 lac crore.
Merger Number 2: Syndicate Bank+ Canara Bank
Syndicate Bank is merged with the Canara Bank. After this merger; the Canara bank would be the fourth largest Public Sector of India. The total business of Canara would be 15.20 lac crore with a branch strength of 10,342.
This merger would reduce the cost of operations due to network overlaps. These two banks have a similar work culture that is why it would lead to facilitate a smooth transition.
Merger Number 3: Andhra Bank+ Corporation Bank+ Union Bank of India
Andhra Bank and Corporation Bank are merged with Union Bank of India. This merger would make Union Bank of India 5th largest Public Sector Bank. This merger would have the potential to increase the post-merger bank’s business by 2-4.5 times.
After this merger, the total business of Union Bank of India would be Rs. 14.59 lac crore while total branches would be 9,609.
Merger Number 4: Allahabad Bank + Indian Bank
In the fourth merger, the Indian bank would be merged with the Allahabad Bank. after the merger, Allahabad bank would be the 7th largest Public Sector Bank of India. After the merger, the total business of Allahabad bank would be Rs. 8.08 lac cr and the number of branches would be 6,104.
So after the merger of these two banks the size of business would get doubled which would increase their global competitiveness.
Benefits of Banking Merger
1. After these mergers, the lending capacity of the Public Sector Banks will increase and their balance sheet would also be strong.
2. These big banks would also be able to compete globally and increase their operational efficiency by reducing their cost of lending.
3. India needs investment in huge quantities to turned India into a 5 trillion economy. If banks have sufficient money to fund big projects than the economic development of the country would speed up.
4. The merger would help in better management of banking capital.
So after the merger of the 10 PSBs in the four major banks seems a good step in ensuring the availability of the money for the investment purpose in the country.