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PSU Bank Mergers on the Cards as Govt Mulls Consolidation

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Merger of PSU banks

In a major move that is set to redefine India’s banking space, Finance Minister Nirmala Sitharaman announced the merger of 10 public sector banks into four. The announcement of merger has now got the cabinet approval. The merger will take effect from April 1, 2020. The amalgamation scheme includes the merger of

  • Allahabad Bank with Indian Bank
  • Oriental Bank of Commerce (OBC) and United Bank of India with Punjab National Bank (PNB)
  • Syndicate Bank with Canara Bank
  • Corporation Bank and Andhra Bank with Union Bank of India

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What’s also noteworthy is the fact that the government has announced capital infusion worth more than 55,000 crore into public sector banks (PSBs). The table below shows the amount distributed among the PSBs.

PSBsCapital Infusion (In ₹)
PNB16,000 Crore
Union Bank of India11,700 Crore
Bank of Baroda7,000 Crore
Indian Bank2,500 Crore
Indian Overseas Bank3,800 Crore
Central Bank of India3,300 Crore
UCO Bank2,100 Crore
United Bank of India1,600 Crore
Punjab and Sind Bank750 Crore

List of PSU Banks After Merger 2020

Anchor BankBanks to be Merged with Anchor BankCombined Domestic Branches
Punjab National BankOriental Bank of Commerce + United Bank of India11,437
Canara Bank Syndicate Bank 10,342
Indian BankAllahabad Bank-
Bank Of Baroda Dena Bank +Vijaya Bank9,490
Union Bank of IndiaAndhra Bank + Corporation Bank 9,609
State Bank of India (SBI)State Bank of Bikaner and Jaipur (SBBJ) + State Bank of Hyderabad (SBH) + State Bank of Mysore (SBM) + State Bank of Patiala (SBP) + State Bank of Travancore (SBT) + Bharatiya Mahila Bank24,000 (approx)
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BoB, Dena Bank and Vijaya Bank Merged Together on April 1, 2019

State-run Bank of Baroda has now become India’s second largest public sector bank after its merger with Dena and Vijaya Bank respectively. The amalgamation of the two lenders with BOB, will be effective from 1 April, 2019. This is the first three-way merger of the banks in India, making the combined geographical reach of 9,490 branches, 13,400 ATMs with 85,678 employees serving 120 million customers.

From Monday onwards all the branches of Dena and Vijaya Bank will function as branches of Bank of Baroda and the customers of both banks will be treated as customers of BOB, the RBI said on Saturday. In addition to this, the customers will also continue to use the same account number, IFSC Code, MICR Code along with their current cheque books and ATM cards.

Financial ParametersBank of Baroda (BoB)Vijaya BankDena BankMerged Entity
Total Business (In Cr)10,29,8102,79,5751,72,94014,82,325
Gross Advances (In Cr)4,48,3301,22,350699206,40,600
Deposits (In Cr)5,81,4851,57,3251,03,0208,41,830
Domestic Branches5502213018589490
Advance Branches81573868
Deposit Branches106745589
Employees56360158751344085675
RoA 0.29%0.32%-2.43%-0.02%
CRAR Capital Ratio12.13%13.91%10%12.25%
CET-1 Capital Ratio9.27%10.35%8.15%9.32%
Net NPA5.40%4.10%11.04%5.71%
CASA Ratio35.52%24.91%39.80%34.06%

After this three-way merger, the combined entity will have deposits and advances of Rs.8.75 lakh crore and Rs.6.25 lakh crore respectively. Not only this, the merger also helps BOB increase its reach in the Western, Southern and North-Eastern regions of India such as Maharashtra, Karnataka, Gujrat, Kerala, Tamil Nadu and Andhra Pradesh. Well, if experts are to be believed, the new Bank of Baroda will improve customer base, market reach, operational efficiency and a capacity to offer a wider bouquet of products and services to the customers.

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Check Out the Plan of Government with Merger

The government is seriously considering to reduce the number of public sector banks (PSUs) from the existing 21 to 12 with a view to creating 3-4 global sized banks. The existing count of these banks can get reduced to 10-12 in the medium term, while there would be 3-4 banks of the size of State Bank of India (SBI) as per the 3 tier structure. However, regional centric banks like Andhra Bank and Punjab & Sind Bank would continue to exist as independent entities. The same will go with some mid-sized banks.

What’s giving more fodder to the government to go ahead with the merger is the grand success SBI achieved by combining its five associate banks and Bhartiya Mahila Bank to form a single entity. The five associate banks included State Bank of Bikaner & Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Travancore (SBT), State Bank of Patiala (SBP) and State Bank of Mysore (SBM).

By virtue of the merger, SBI got into the hall of fame by making an entry into the list of 50 banks in the world. The merger has helped the bank take its customer count to 37 crores and add a vast network branches and ATMs that went up to 24,000 and 59,000, respectively. Humongous, isn’t it? So, how’s government going to execute a massive consolidation drive involving banks of different capital base? Let’s find out the answer now.

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Top PSU Banks to Choose Smaller Ones for Merger

According to several reports in the media, top PSU lenders like Punjab National Bank (PNB), Bank of Baroda (BoB), Bank of India (BOI), Canara Bank and Union Bank of India would take under their umbrella some 3-4 banks to create a large entity and would have a massive distribution channel to boast of. The merger will add to the operational strength of the PSU banks. So, see in the table where will the PSU banks stand if the proposed merger structure does take effect.

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Table Showing the Merger List of PSU Banks

Acquirer BanksBanks to be MergedStaff Count (Approx.)Asset Count (Crores) (Approx.)
PNBOriental Bank of Commerce (OBC), Allahabad Bank, Corporation Bank, Indian Bank1,50,0002,60,000
Bank of BarodaVijaya Bank, Dena Bank85,6756,40,600
Bank of IndiaAndhra Bank, Bank of Maharashtra9400010,90,0000
Canara BankUCO Bank, Syndicate Bank, Indian Overseas Bank1,40,00013,82,000
Union Bank of IndiaIDBI, Central Bank of India1,04,00011,80,000

Impact of PSU Bank Mergers

The merger of PSU banks has its share of merits and demerits. The addition of staff and network is the effect that can be easily gauged from the impending merger move. What else can emerge due to the merger? Don’t know? Take a look below.

Merits of Merger

  • A large capital base would help the acquirer banks to offer a large loan amount
  • Service delivery can get improved
  • Recapitalization need from the government to reduce
  • Customers will have a wide array of products like mutual funds and insurance to choose from, in additional to the traditional loans and deposits
  • Technological up gradation on the cards

Demerits of Merger

  • It would be tough to manage issues pertaining to human resource
  • Few large inter-linked banks can expose the broader economy to enhanced financial risks
  • The local identity of small banks won’t be that prominent

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