Moneycontrol
Get App
you are here: HomeNewsEconomyPolicy
Last Updated : Aug 30, 2019 09:20 PM IST | Source: Moneycontrol.com

Implications of FM Sitharaman's mega bank merger plan and what brought it about

Merging weaker banks with stronger ones will erect a protective ring for depositors and shareholders.

Moneycontrol News @moneycontrolcom

The government on August 30 announced that Punjab National Bank, Oriental Bank of Commerce and United Bank will be merged into a combined entity with a total consolidated business of Rs 17,95,000 crore.

Likewise, Union Bank, Andhra Bank and Corporation Bank will be merged into a single entity that will have a combined business of Rs 14,59,434 crore

Canara Bank and Syndicate Bank will separately be combined into a single bank that will command a combined business of 15,20,295 crore.

Close

Similarly, Indian Bank and Allahabad Bank will be merged to form a single bank where the amalgamated entity will have a business of Rs 8,07,859 crore.

comparision after bank mergers_for website

What happens when you pool the individual savings of each member of a household? The figure looks large and formidable. If one individual slips into a crisis, the combined savings will take care of him and his dependents.

Ditto for banks. Merging weaker banks with stronger ones will erect a

protective ring for depositors and shareholders.

"You need strong banks rather than numerically large numbers," former Finance Minister Late Arun Jaitley had said in March 2016.

In 2018, the government set the ball rolling on this plan. Bank of Baroda, Vijaya Bank and Dena Bank will amalgamate into a single organisation.

India nationalised banks in 1969 to remove the concentration of control from the hands of a few.

Nationalisation also intended to give a "professional bent to bank management" and to "encourage a new class of entrepreneurs", then Prime Minister Indira Gandhi had said.

Having transited, rather painfully, from “ledger” book dominated PSBs to digital financial companies, the government now wants public sector banks to achieve scale and size to match up to the private sector.

The scale is important because it brings efficiencies in operations. India's

largest lender SBI does not feature among the top-50 global banks.

According to The Banker, the world's top four banks in 2019 were from China—the Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China and Bank of China

For customers, the shared infrastructure will come as a big plus. For instance, there will be no cross-bank ATM usage fees between the merged banks. Mergers will allow customers to use of the common network.

Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
First Published on Aug 30, 2019 07:07 pm
Loading...
Sections
Follow us on
Available On
PCI DSS Compliant