Mega-merger of PSU banks on schedule: 6 banks cease to exist from today; experts say exercise will not be smooth, seamless

FP Staff
·4-min read

The biggest-ever bank consolidation exercise in the public sector unit kicked in today. Six PSU lenders were merged into four in a bid to make them globally competitive.

Earlier, the Reserve Bank of India (RBI) had said that the scheme of merging 10 PSU banks into four bigger lenders is on schedule despite the country-wide coronavirus lockdown. It has triggered 21-day lockdown to contain the spread of the deadly virus. The merger will come into force from 1 April, 2020, the central bank had said.

Experts said merger at this point of time will not be very smooth and seamless. However, heads of the anchor banks are exuding confidence.

"We don''t foresee any problem it is going as per the plan. We have reviewed in the light of this situation also. Certain modification in implementation. We have done so that there is not any disruption for employees and customers. We are ensuring zero disruption," Union Bank of India Managing Director Rajkiran Rai G told PTI.

The four anchor banks€"PNB, Canara Bank, Union Bank and Indian Bank€"are postponing some part of the implementation and processes due to the lockdown.

"For merging banks, we have not changed some of the process like loan process, etc, which we proposed to do earlier. However, because of the prevailing situation we will be continuing old system till the situation comes under control," he said.

With the merger, the bank looking at more than Rs 2,500 crore of synergy benefits in the next three years, he added.

Mega consolidation plan

The notice for the above amalgamations was released at the start of March this year. However, unions of bank officers had written to the Prime Minister Narendra Modi last week asking for a delay in the deadline in view of the coronavirus lockdown

As per the mega consolidation plan, Oriental Bank of Commerce and United Bank of India will merge into Punjab National Bank (PNB); Syndicate Bank into Canara Bank; Andhra Bank and Corporation Bank into Union Bank of India; and Allahabad Bank into Indian Bank.

Following the consolidation, there will be seven large public sector banks (PSBs), and five smaller ones.

There were as many as 27 PSBs in 2017. The total number of public sector banks in the country will come down from 18 to 12 beginning next financial year.

Speaking on preparedness, Indian Bank MD Padmaja Chunduru said harmonisation of products€"both on the loan and deposit sides€"has been completed and the same products will be offered to all customers.

She also said all the deposit and loan products, including access to Indian Bank's emergency credit lines launched in the wake of Covid-19 would be made available to the customers of Allahabad Bank.

"We have focused all our resources on the important things that matter for day one€"treasury integration has happened and IT integration to the extent of product harmonization and rolling out of the same products has happened," she said.

She expects the entire IT integration to be completed by December 2020.

Following this merger, PNB will become second largest after the State Bank of India (SBI), Canara Bank fourth, Union Bank of India fifth and Indian Bank seventh biggest public sector lender.

Commenting on the consolidation, Canara Bank MD L V Prabhakar said, "We are delighted that following the amalgamation as a single legal entity, we will become a powerful banking institution that is globally competitive and efficient working towards providing differentiated customer experience excellence across all our products and services".

The combined entity will be large but with an unchanged approach to grass-root banking, customer delight, and satisfaction, Prabhakar said.

The merger will result in the creation of seven large PSBs with scale and national reach, with each amalgamated entity having business of over Rs 8 lakh crore and it would help create banks with scale comparable to global banks and capable of competing effectively in India and globally.

In addition, consolidation would also provide impetus to merged entities by increasing their ability to support larger ticket-size lending and have competitive operations by virtue of greater financial capacity.

Last year, Dena Bank and Vijaya Bank were merged with Bank of Baroda. Prior to this, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with the public sector bank.

These were State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad effective April 2017.

--With PTI inputs

Also See: Merger of 10 PSU banks comes into effect from today; 10 things you need to know about implications of govt's move

Despite coronavirus lockdown, merger of 10 PSU banks to come into effect from 1 April as planned, says RBI

Indian Bank NPA to rise, no change in board post-merger, says MD & CEO Padmaja Chunduru

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