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Is the mega merger of Public Sector Banks a good move?

Is the mega merger of Public Sector Banks a good move?

The Union Finance Minister, Nirmala Sitharaman, has recently announced the consolidation of Public Sector banks to bring down India’s PSB count from 27 to 12. This long-term move is aimed at creating a robust banking system within global reach. The decision was taken on the backdrop of a slowing economy which has sent alarm bells ringing in all sectors.

There will be four sets of mergers as unveiled by the government-Punjab National Bank, Oriental Bank of Commerce and United Bank of India with businesses of 7.95 trillion rupees will join hands to become the second largest lender. Union Bank of India will combine with Andhra Bank and Corporation Bank; Canara and Syndicate Bank will coalesce; and Indian Bank will fuse with Allahabad Bank.

What could be the impact of this decision?

While there is no cause to worry if one is an account holder of the above mentioned banks, it will be prudent to keep a few things in mind:

  • With the mergers, the interest rates for the savings account, fixed deposits as well as on the new loans could change. However, if the interest is based on MCLR, there may or may not be a change in the reset period.
  • According to the directives of the RBI, it will be compulsory for the banks to link their retail loans to the repo rate from the 1st of October 2019 and one has the option to switch to the new repo rate based loan as well. In case of FDs, the interest would remain the same till the maturity of the fund. After that the fund would be transferred to the account of the newly merged banks.
  • In case your bank gets merged with a bigger bank, then there is a possibility of the account number getting changed. However, customers will be duly notified about such changes. Customers can carry on their regular banking services with ease.
  • The address of the bank itself could change along with the Indian Financial System Code or IFSC, along with online banking login and password. The mobile application, however, may get changed after the merger but it will be possible to use the existing debit card and later users will receive a new debit card.

Note for Account Holders

It is possible that the mergers will affect your KYC details in all the places. It may be that the KYC details will be provided to the Income Tax department, mutual fund companies, insurance companies and with new banking entities. The IFSC code address, account numbers etc could be changed and they have to be duly updated in all these areas.

There could be a change in IFSC code and if you are receiving money from somewhere, then there could be problems if the information is not updated. Then, if you have an auto debt facility, like insurance, mutual fund or for other investments, then the auto – debit would have to be reset for all these services. You might also need to update the details with your employer if any of the banks hold your salary account to avoid any discrepancy with the funds. It is a good idea to make a list of all the services so that nothing is left out.

The merger can take months and so there is no need to panic just now. But it will be a good idea to keep a track of things and keep enquiring from time to time so that nothing takes you by surprise.


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