The Government has embarked upon a new mega bank merger exercise which was originally expected to be concluded by the 1st of April, 2020. However, it is still unclear as to whether the mergers will be successfully executed within this targeted timeline. Along with vital regulatory approvals which usually require anywhere between 1-2 months, the Scheme of Amalgamation also has to be put before the Parliament for a period of 1 month for perusal by the elected members. This mega merger exercise will assimilate 10 PSBs (public sector banks) into a fewer but more powerful banking entities.
Even when the approval of the Union Cabinet has been issued for the mega merger blueprint, it should take another month or even more for working out aspects like the consent of shareholders of banking entities, regulatory approvals and the share swap ratio fixation.
Major things to know in this regard
Reports have stated that the PMO (Prime Minister’s Office) has asked for more details from these banking entities about their financial projections for a period of 3-5 years. Other details have also been sought regarding NPAs, credit growth, cost savings and capital requirement due to the impending mergers. Hence, the mergers have little chances of being implemented right from the start of the new financial year, going by the current developments.
The second-half of the Budget session in the Parliament is expected to start from 2nd March, 2020 and it remains to be seen whether the Scheme of Amalgamation is laid before the members of the house by then. In August 2019, the Central Government declared its intentions to consolidate and merge 10 PSBs into four mega-sized public sector lending entities. Going by this blueprint, Oriental Bank of Commerce and United Bank of India will be merged into PNB (Punjab National Bank), making this new entity the second biggest PSB in the country.
On the other hand, Canara Bank and Syndicate Bank have been proposed for a merger while Indian Bank and Allahabad Bank may merge as well. In similar fashion, Corporation Bank and Andhra Bank will be merged into Union Bank of India. While most sections of industry support this proposed mega merger of ten public sector banks, teething issues still exist with previous mergers like the consolidation of Dena Bank and Vijaya Bank into Bank of Baroda (BoB). In this case, IT integration for the first two banks is still taking time to be fully implemented with the latter while there are HR based issues as well. Some sections of industry feel that this mega merger will disrupt the sector hugely and impact operations, particularly sanctioning of loans since there will be an initial period of confusion. The banking unions have opposed the merger, stating that this will not be a solution towards fixing the economic slowdown and issues of the banking sector in India.
Other key aspects related to the proposed banking mergers
AIBEA (All India Bank Employees’ Association) officials have stated that instead of consolidation and mergers, there is a need for further expansion at the moment. Earlier mergers, according to them, have not yet shown desired results and this huge merger exercise may lead to major issues for the banking system at a time when the economy is still caught in a slump. Some officials at other PSBs feel that grouping of banks for consolidation has to be carefully considered since the mergers may lead to closure of branches on a large scale eventually. This could be observed, particularly in the case of consolidation of Canara Bank and Syndicate Bank, since both have a strong market presence in South India and Karnataka in particular.
The merger of Oriental Bank of Commerce with Punjab National Bank and Union Bank of India with Andhra Bank will have similar branch closure possibilities that will have to be addressed according to senior banking officials. IT upgradation and integration also requires at least a few months or even a couple of years to be fully implemented post mergers of two or more banking entities as per sector experts. Yet, Union Finance Minister Nirmala Sitharaman has already stated that there is no reason for rolling back the mega merger blueprint for banks that the Government wishes to implement.
In fact, a large chunk of the banking sector and related industries advocates this mega merger exercise in sync with the vision of the Reserve Bank of India (RBI) which has already opined that consolidation is the way forward. In the current scenario, these mega mergers, according to the RBI, will help in creating global banking giants in India. The mergers will achieve the objective of creating better capitalized and more powerful lending institutions of scale and size at par with global biggies. The RBI has stated that these mergers of public sector banks will bring about a greater transformation of the Indian banking sector. There will be better capitalized, stronger and more efficient banking entities offering the best technologies and top-notch payment and transaction systems. The mergers of banks will infuse in them the capabilities towards becoming global leaders in the industry. At the moment, it remains to be seen whether the targeted deadline of 1st April, 2020, is met or whether this exercise is pushed back to a later date.