The Union Cabinet nods for bank merger, 10 public sector bank (PSB) to turn into four big banks. Will it change the way India does the banking business? And what could be the long term impact? It’s precocious to draw up any conclusion now. Is this again an Ad Hoc testing measure to tide the crises looming large in the banking sector with huge non performing assets (NPA) and mis-management? A couple of banks have already collapsed and the Yes Bank breaking story on 5th March 2020, 6 pm is adding worry to the customer fraternity of banks[1]. The scenario speaks volumes of the scary state of affairs in our public sector banks and private sector banks. Total out of control from our regulatory authority.
The banks would be able to support specialised loan products for Micro, Small and Medium Enterprises (MSME), short term loans for exporters such as supply chain financing and cash management services.
The Modi government had earlier started the process in 1991 recommended the report on the PSBs bank’s merger. With Dena Bank, Vijaya Bank and Bank of Baroda merging as BOB earlier. SBI and it’s 5 affiliated banks already merged. The new round of mega-mergers announced through cabinet nod on Wednesday 4th March 2020, wherein 10 PSBs to soon turn into four megabanks.
The Union Cabinet has given a go-ahead for the merger proposal and the government claim to have assessed the banks. The bank’s merger is on course and decisions have already been taken by the respective bank boards. As per the mega plan been announced, the United Bank of India and Oriental Bank of Commerce would merge with Punjab National Bank, making the proposed entity the second largest public sector bank. Syndicate Bank will be merged with Canara Bank and Allahabad Bank with Indian Bank. Similarly, Andhra Bank and Corporation Bank are to be clubbed with Union Bank of India. Effective from the next financial year April 1, 2020, the balance sheets, as well as stocks of these banks, will be integrated, according to the scheme of amalgamation approved by the govt.
The govt is stating that businesses and industry will benefit through an increased lending capacity, with the regulatory ceiling for lending to individual borrowers increasing by over Rs 1,500 crore to Rs 3,000 crore. Also adding that the banks would be able to support specialised loan products for Micro, Small and Medium Enterprises (MSME), short term loans for exporters such as supply chain financing and cash management services.
The banks will have to swiftly move to start the process on mergers and the new identity will come into effect from 1st April 2020. All the equation board resolution stakeholders shareholders have to be on the same page and approval done with a short stipulated period. After the process is complete, India will have 12 PSBs instead of 27 back in 2017
SBI working after the merger has been smooth, as they already had prior affix to the merged banks.
Bank unions, who believe the merger is not a solution to the banking sector’s problems, are opposing the move. The oppose is to the anticipated job loss, which will create lesser job vacancies, a compulsory VRS scheme to be introduced and resist the new work environment which will come into force with 3 to 4 different bank mergers.
SBI working after the merger has been smooth, as they already had prior affix to the merged banks. The Dena Bank and Vijaya Bank BOB merger is still to complete 1st year of operation and critical analytics report. The audit report is yet to be scrutinised. Have to wait further to assess the actual pros & cons of the merger.
Generally, there are some pros and cons of bank mergers which will be surfacing while the mergers of banks are as given below.
Note:
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.
References:
[1] Saga of Yes Bank: Why you need a competent Finance Minister – Mar 6, 2020, PGurus.com
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They merged Indian Airlines and Air India. Result is visible. Nobody wants to buy the company. Same will happen with banks. Sum of parts is not greater than individual parts, when one or more part is rotten. Vote bank politics.