Finance in India: Business reforms or ? About Bank Mergers

As always, facts are being quoted and reported without evidence or investigations by various people groups and media. The government assumes that this will bring in efficiency and reduce dependence on both RBI and the government. Obviously the banking leaders are supporting the decision. Employees are against it citing some logic but everyone knows whats the real issue. Left as always is supporting them. Perhaps there are no independent academicians, researchers, economists or management experts in our country as they have not been quoted. No one cares or has the time to report on the hard facts.

Business Standard

  • Finance Ministry: Amalgamating 10 govt banks into 4 entities in mega consolidation move – After today’s mergers, the count of government-owned banks will come down to 12 from 27 in 2017
  • Bank Unions: Mergers lack logic, will destabilize finance and economy more – While announcing the merger, finance minister Nirmala Sitharaman said plans is to create fewer but stronger global- sized banks for building a $ 5 trillion economy
  • NextGen PSBs: Govt unveils mega bank mergers to revive economic growth – 10 banks to be merged into 4; Indian Bank & Allahabad to be one

The first merger, (PNB, OBC & UBI) Sitharaman said, would bring about high CASA and therefore higher lending capacity, even while asserting that the tech platform the three merged banks will use will be compatible. ❚ The second merger, (CB & SB) Sitharaman said, would also create the third largest network of over 10,000, ensuring continuation of services for all customers. ❚ The third merger (UBI, AB & CB) Sitharaman said was large cost reduction, cost savings for the subsidiaries of each merged entity, and tech compatibility.

“The proposals which the government has moved are unmindful since it has no logic or rationale. Neither, it is the case that a weak bank is merged with a strong one nor geographically compatible banks are being merged,” All-India Bank Employees Association said ❚ The unions further said United Bank, headquartered in Kolkata is being merged with the Delhi-based Punjab National Bank, while Syndicate Bank is being merged with Canara having network in same geographical areas. ❚ The union said in the process of merger, SBI had closed over 1,000 branches and in case of Bank of Baroda, more than 500 branches are being closed.

We are trying to build next-generation banks, big banks with the capacity to enhance credit,” Sitharaman said, adding that scaling up would allow banks to have a lot more resources, and lending cost would come down. ❚ Finance Secretary Rajiv Kumar said The key factors for the mergers were: Technological platform, customer reach, cultural similarities, and competitiveness. ❚ Kumar said the government was confident all these banks would move out of PCA as all of them would meet the required regulatory capital after recapitalization. The PCA framework restricts a bank’s ability to expand its business. ❚ “It’s good, as the ability to service people and to deploy technology faster will improve. There will be cost rationalization. We all are operating similar products and serving Indian clients, so putting together the strength helps,” Andhra Bank Managing Director and Chief Executive Officer J Packirisamy told Business Standard.

Times of India

  • Left parties criticize Center’s decision to merge public sector banks
  • Former PM Manmohan Singh slams ‘all-round mismanagement’ by Modi govt, says we are in midst of ‘prolonged slowdown’

The Left parties on Saturday said the “unwarranted” move will lead to shrinkage of the network of branches and adversely impact financial inclusion. ❚ They alleged the decision is a deliberate attempt to divert attention from the real issues facing the country’s economy which is “in shambles”. ❚ “The proposed move to merge banks will shift the attention of the banks to issues connected with merger and bad loan recovery will take a back seat,” ❚ “In the previous merger of banks with SBI, we have seen that 7,000 branches were closed down.” ❚ “We need our public sector banks to effectively serve the people and we do not need such big banks which will only help the big corporate,” ❚ The Communist Party of India (Marxist) added “It is reported that the merger of Dena Bank and Vijaya Bank with Bank of Baroda will result in the closure of 800 branches,”

“The country has the potential to grow at much faster rate. Reach out to all sane voices to steer economy out of this man-made crisis,” he said. ❚ “Investor sentiments are in doldrums. These are not the foundations for economic recovery,” he added. ❚ Resilience of the RBI will be tested after this record transfer to the government. ❚ “Budget announcements and rollbacks have shaken the confidence of international investors. India has not been able to increase its exports to take advantage of opportunities that have arisen in global trade due to geopolitical realignments. Such is the state of economic management under the Modi government,”


  • Efficient Move: Must not choke credit flow – The amalgamation process may choke management bandwidth, which should not result in slowdown in credit flow to the economy.
  • In big bank reform, 10 merged into 4

The consolidation will help banks reduce expenses, as there was replication of services and infrastructure. Very often one finds two or three different banks with branches and ATMs next to each other, servicing the same clients. It can also help them explore new geographies. The amalgamation process may choke management bandwidth, which should not result in slowdown in credit flow to the economy. —Anil Gupta, VP, Financial Sector Ratings, ICRA Ltd

SBI chairman, Rajnish Kumar, hailed the move, saying, “Today’s announcement is a cohesive and a clear recognition that bigger banks have that much more ability to absorb shocks, reap economies of scale as well as the capacity to raise resources without depending unduly on the exchequer. The announcements also underline the fact that the government recognizes the importance of a robust banking system in achieving the goal of $ 5 trillion economy as bigger banks will be better armed to meet the credit needs of a fast-growing economy like ours.”