It refers to the pooling of the assets and liabilities of two or more banks. Starting from M Narasimhan Committee, various committees and experts have advised that India should have few but big banks.
Small public sector banks act as an impediment for high economic growth due to the following reasons:
Bank of Baroda and SBI have been consolidated in April 2019 and September 2019 respectively. In this light, it was announced on 30 September, 2019 that 10 public sector banks will be merged into four big banks.
Anchor bank |
Amalgamating banks |
PSB by rank |
Punjab National Bank |
OBC, United Bank of India |
2nd largest |
Canara Bank |
Syndicate Bank |
4th largest |
Union Bank of India |
Andhra Bank, Corporation Bank |
5th largest |
Indian Bank |
Allahabad Bank |
7th largest |
Table: Merging of 10 PSBs into four big banks
Significance of Bank Mergers
Capacity Enhancement: These bank mergers, and the ones already carried out, will lead to the creation of big banks with an enhanced capacity to give credit. Previously, the government has already merged SBI with its affiliate banks, and Bank of Baroda with Vijaya Bank and Dena Bank.
Anchor bank | Amalgamating bank(s) | Business size* | PSB rank by size | CBS |
Punjab National Bank | Oriental Bank of Commerce United Bank of India | ₹17.94 lakh cr. | 2nd largest | Finacle |
Canara bank | Syndicate Bank | ₹15.20 lakh cr. | 4th largest | iFlex |
Union Bank of India | Andhra Bank Corporation Bank | ₹14.59 lakh cr. | 5th largest | Finacle |
Indian Bank | Allahabad Bank | ₹8.08 lakh cr. | 7th largest | BaNCS |
SBI | Amalgamated earlier | ₹52.05 lakh cr. | ||
Bank of Baroda | Amalgamated earlier | ₹16.13 lakh cr. |
Bank |
Business size* |
Bank of India |
₹9.03 lakh cr. |
Central Bank of India |
₹4.68 lakh cr. |
Bank | Business size* |
Indian Overseas Bank | ₹52.05 lakh cr. |
UCO Bank | ₹3.17 lakh cr. |
Bank of Maharashtra | ₹2.34 lakh cr. |
Punjab and Sind Bank | ₹1.71 lakh cr. |
Fig: Consolidated PSBs in India
Concerns
Ability to Compete Globally Doubtful: The bank mergers announced by the government are still not large enough in size to be able to take over global competitors. For example, even after the merger the PNB would be about one third the size of the 50th largest bank in the world.
Way Forward
Apart from bank consolidation today the banking sector needs comprehensive reforms covering management, privatization and operational changes:
Thrust on better governance, a more liberal approach to the composition of boards, succession planning on a par with private sector peers, and competitive executive compensation would determine whether the reforms provide independence and ensure accountability at these banks.