india

Updated: Aug 30, 2019 18:49 IST

Finance minister Nirmala Sitharaman announced mega mergers of ten state-run banks into four financial behemoths with an aim to unleash greater efficiencies and latent strength in India’s banking sector with an eye on realising government’s $5 Trillion economy dream.

The biggest of the four, will be the merger of Punjab National Bank with Oriental bank of Commerce and United Bank of India to create India’s second largest Public Sector Bank (PSB) with a business of Rs 17.5 lakh crores. The new entity will also have the second largest branch network, Sitharaman said on Friday.

The idea was to combine “the large capacity” of the Punjab National Bank with “technology driven capacity” of OBC and the “strong deposit franchise” of the United Bank of India, said the Finance Minister.

In the second merger, two big banks from south India, Canara and Syndicate Bank will be combined to create the 4th largest Public Sector Bank with a business of Rs 15.20 lakh crores. The merged entity will have the 3rd largest branch network in India with 10342 branches. This merger will lead to large cost reduction and increased synergy due to network overlap, said Sitharaman.

“The two banks had similar culture and there will be continuation of service for customers without disruption as both use compatible financial technology and will be able to integrate quickly,” said the Finance Minister.

Union Bank of India to merge with Andhra & Corporation Bank

The third merger will combine Union Bank of India with Andhra Bank and Corporation bank into one entity to create the 5th largest PSB which will be twice the size of Union Bank of India. The merged entity will have business of Rs 14.9 lakh crore and will be the 4th largest, in terms of branch network, with 9609 branches.

In the fourth merger, Indian Bank will be combined with Allahabad Bank to create the 7th largest PSB with business of Rs 8.08 lakh crore. This merger, Sitharaman said, with its strong networks in the South, North and East will have a nationwide presence. These three banks also had complimentary technology, she said.

Merger objective- Strong national presence & global reach

According to Sitharaman, “Strong national presence and global reach” was one of the objectives of the consolidation plan. “82 per cent of all PSB business and 56 per cent of all commercial bank business will now be with these entities,” She said.

Last year, the government had approved the merger of Vijaya Bank and Dena Bank with Bank of Baroda (BoB). In 2017, the State Bank of India absorbed five of its associates and the Bharatiya Mahila Bank.

The mergers, according to the Finance Minister had led to positives, like wider offerings and enhanced customisation, rationalized operation, no employee retrenchment and return to core function focus and adoption of best practices.

“The Current and Savings Account (CASA) ratio growth of 6.9 per cent has been robust post merger, giving the new entity more liquidity. The merger has also resulted in a strong retail loan growth of 20.5 per cent. It has also increased profitability,” Sitharaman said and added that at least 38 market analysts held a unanimous view that the market capitalization for the merged entity will touch Rs 51,000 crore by August 2020.

“We are trying to build the next-gen banks,” she said.