In what comes as the second wave of the government’s efforts to revive the economy, Finance Minister Nirmala Sitharaman on Friday announced a slew of banking reform measures, including merger of 10 public sector banks into four entities. This would take the number of banks in the country from 27 in 2017 to 12, Ms. Sitharaman said.
These bank mergers, and the ones already carried out, will lead to the creation of big banks with an enhanced capacity to give credit, she said. These big banks, she said, would also be able to compete globally and increase their operational efficiency by reducing their cost of lending.
“We have chosen these banks for the mergers on the basis of ensuring that there is no disruption in the banking services, and that the banks should benefit from increased CASA [current account savings account] and greater reach,” Ms. Sitharaman said. “The banks that are being merged with each other run the same or very similar platforms, and so there will be no disruption in their activities.”
The largest of the mergers announced is that of Punjab National Bank with Oriental Bank of Commerce and United Bank. The amalgamated entity — to be called Punjab National Bank — will become the second-largest public sector bank in India, after the State Bank of India. It will also become the second-largest bank in India in terms of its branch network, with a combined total of 11,437 branches.
The second merger announced was that of Canara Bank and Syndicate Bank, which would render the merged entity the fourth-largest public sector bank. The merger also has the potential to lead to large cost reductions due to network overlaps, Ms. Sitharaman said, adding that the similar business cultures of the two banks would also facilitate a smooth transition.
The third merger is of Union Bank of India with Andhra Bank and Corporation Bank, the Finance Minister said, which would make the merged entity the fifth largest public sector bank. This merger would have the potential to increase the post-merger bank’s business by 2-4.5 times, she added.
The fourth merger announced is of Indian Bank and Allahabad Bank. This, too, would lead to a doubling of the size of the business and would also lead to a huge potential for scaling up due to the complementary networks of the two banks.
“There will be no retrenchment due to these mergers, as was shown in the case of the Bank of Baroda merger also,” Ms Sitharaman said. “The employees received the best of the employee benefits and the admin staff was redeployed for business.”
Following all these mergers, the country will have a total of 12 public sector banks, half of which—Punjab National Bank, Canara Bank, Union Bank of India, Indian Bank, State Bank of India, and Bank of Baroda—will be able to compete at a global level, the Finance Minister said.
Bank of India and Central Bank of India will both be able to expand their national presences, she said, while Indian Overseas Bank, UCO Bank, Bank of Maharashtra, and Punjab and Sind Bank will be able to strengthen their regional focus.
The government did not give the date by which these mergers are to be completed, as that decision will be taken following further consolidation with the relevant banks. Finance Secretary Rajiv Kumar, however, said that these are all the mergers the government had envisaged so far.
Previously, the government has already merged State Bank of India with its affiliate banks, and Bank of Baroda with Vijaya Bank and Dena Bank.
Apart from the mergers, Ms Sitharaman also announced a number of smaller reforms to the boards of the banks that are aimed at improving their efficiency and accountability.
In order to make the management accountable to the boards of the banks, a board committee would be made in charge of appraising the performance of officers of the rank of general managers and above, including the managing director. The banks have also been allowed to recruit chief risk officers from the market, at market-linked compensation to attract the best available talent.
Other reform measures were aimed at increasing the engagement of non-official directors, allowing bank boards to reduce or rationalise the number of committees, and increasing the effectiveness of the directors on the Management Committees of Boards by increasing the length of their terms.
