Bank merger in India was an initiative to redefine banking. The main objective was to create global-sized banks to improve operational efficiency and widen the reach across the country by increasing the branch network. One of the objectives of a bank merger was to control the inclusion of Non-performing Assets.
The focus on the economy, profitability and cost-effectiveness is what brought in the bank merger in India. The growing competition among the key players in the same industry had a great impact on the economy and profitability. One other goal was to reduce and avert financial distress that arose out of bad loans. Restructuring of the banking industry with mergers was done for improving the performance both in terms of profitability as well as customer service.
Though the bank merger in India has proved to be good for the overall economy, we need to wait and watch the progress of the banking industry post-merger.
Bank Merger is an agreement between the acquiring bank and the merged bank to combine their assets and liabilities and become a single entity. The merger resulted in 10 Public Sector Banks pooled into 4 Public Sector Banks. However, IOB, Bank of Maharashtra, Punjab and Sind Bank, Bank of India, Central Bank of India and UCO Bank, which are region-centric, will remain as independent entities.
The grand success of the merger of State Bank of India with five associate banks and Bharatiya Mahila Bank further encouraged the initiative of 10 PSBs merging into four. Five associate banks that merged with the State Bank of India, include the State Bank of Bikaner and Jaipur, the State Bank of Mysore, the State Bank of Travancore, the State Bank of Patiala and State Bank of Hyderabad. The merger has resulted in the State Bank of India becoming a part of the 50 banks in the world.
By acquiring 3 to 4 branches under their umbrella, top PSUs like Punjab National Bank, Canara Bank, Bank of Baroda, Indian Bank and Union Bank of India have now become large entities with a vast network of branches.
|Acquirer Bank||Merged Bank|
|Canara Bank||Syndicate Bank|
|Punjab National Bank|
Oriental Bank of Commerce
United Bank of India
|Indian Bank||Allahabad Bank|
|Union Bank of India|
|Bank of Baroda|
|State Bank of India|
State Bank of Travancore
State Bank of Hyderabad
State Bank of Bikaner and Jaipur
State Bank of Patiala
State Bank of Mysore
Bharatiya Mahila Bank
Punjab National Bank became the 2nd largest PSU after State Bank of India. Currently, there are 12 PSUs out of 27 earlier, including Bank of Baroda and State Bank of India. State Bank of India merger with its Associate Banks and Bharatiya Mahila Bank was in the year 2017, and the merger of Bank of Baroda, Vijaya Bank and Dena Bank was in the year 2019.
Branches of the merged banks will work as branches of the acquirer bank. For example, Syndicate Bank branches will now be Canara Bank branches. So customers of merged banks will be treated as customers of the acquirer bank. All the policies and guidelines of Canara Bank will be applicable to customers of Syndicate Bank.
Besides the increase in the volume of assets and liabilities and widening of the network, there are several other merits as well as demerits of bank merger in India.
The following are the merits of a Bank Merger in India.
Though the merits of a Bank Merger are larger in the count, the demerits cannot be ruled out. The following are the demerits of Bank Merger in India.
There are 12 Public Sector Banks after the merger. Earlier the number of Public Sector Banks was 27.
The merged banks are Canara Bank, Punjab National Bank, Bank of Baroda, India Bank, Union Bank of India, and State Bank of India.
Some of the banks that were region-centric remained as independent entities. They are the Central Bank of India, UCO Bank, Bank of Maharashtra, Punjab and Sind Bank and Indian Overseas Bank.
The associate banks that merged with State Bank of India were State Bank of Travancore, State Bank of Hyderabad, State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Patiala and Bharatiya Mahila Bank.
Indian Bank merged with Allahabad Bank, where the acquiring bank is Indian Bank.
The main objectives of bank merger in India were to improve the overall economy, improve profitability, reduce the volume of NPAs, improve efficiency and widen the global reach with an increased branch network.
Bank merger has their own benefits.