PSU Bank Mergers on the Cards as Govt Mulls Consolidation

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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. Last month, the Union Finance Minister Arun Jaitley categorically stated that the government was actively working on the consolidation of PSUs. However, the minister refused to divulge details quoting price sensitive information as a reason.

What is 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 bank’s customer count reached to 37 crores and added 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.

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.

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 BarodaUnited Bank of India, Punjab & Sind Bank760009,37,000
Bank of IndiaAndhra Bank, Bank of Maharashtra, Vijaya Bank9400010,90,0000
Canara BankUCO Bank, Syndicate Bank, Indian Overseas Bank1,40,00013,82,000
Union Bank of IndiaIDBI, Dena Bank, 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.

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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