The idea behind merging the banks was that each would benefit from others, said FM Nirmala Sitharaman in her press conference addressing the media on “100 days of Bold Initiatives and Decisive Actions” of the government on 10th September at Chennai.
Giving the reason behind the merger, FM said that the growing economy needs good banks. She also added that the effective date of mergers of the banks will be decided by the board of respective banks. The statement came after the recent announcement of the government to merge 10 PSU banks into 4 bringing down the total state-run banks from 27 to 12.
The government in its bid to strengthen the banking sector and to conduce the economy has sought the merger of the banks as a radical step towards achieving its goals. It is also pertinent to know that this is the third merger initiated by this government, the initial ones being the merger of Bhartiya Mahila Bank and Associate Banks of SBI with SBI in 2017, and that of Dena Bank and Vijaya Bank with Bank of Baroda in 2018.
Along with the mergers came the announcement of upfront capital infusion of Rs.55,250 crores out of the proposed Rs.70,000 crores into the banks including those who are to be merged. The intention behind this merger is to increase productivity, reduce asset quality pressure, improve credit flow, operating efficiency and corporate governance, make maximum use of technology, and make PSU banks stronger etc.
As per the plan proposed by the government, the Punjab National Bank will be merged with Oriental Bank of Commerce and United Bank of India; Canara Bank with Syndicate Bank; Union Bank of India with Andhra Bank and Corporation Bank; while Indian Bank will amalgamate with Allahabad Bank.
As stated by the FM in her earlier conference the government had considered multiple factors including capital base, deposits base and profile, regional reach, branch numbers and geographical presence, lending and NPA records and asset quality. Also as reiterated by FM in the conference much importance was given to the fintech platform used by the merging banks so that the there is no customer service disruption as common and compatible fintech platform will offer smooth operations and can quickly realize the gains because of the merger.
The government sees the merger as a measure to build next-gen banks with a strong national presence and global reach and one of the important steps in attaining its goal of making India a USD 5 trillion economy by 2024-2025.
