IMPACT OF RECENT MERGERS IN PUBLIC SECTOR

BANKS
Final Submission for the subject of Banking law

SUBMITTED BY
Ankita Das Prn: 16010324212

Section- ‘C’ Semester – VII

SYMBIOSIS LAW SCHOOL HYDERABAD (DEEMED UNIVERSITY)

SYMBIOSIS INTERNATIONAL UNIVERSITY

June 2019- December 2019

Under the guidance of

K. Nageshwara Rao

Assistant Professor

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 CERTIFICATE

The Project entitled “The impact of Recent Mergers in Public Sector Banks”, is
Submitted to the Symbiosis Law School, Hyderabad for Banking Law as part of
internal assessment is based on my original work carried out under the guidance
of K. Nageshwara Rao in the month of September 2019. The research work has
not been submitted elsewhere for award of any degree.

The material borrowed from other sources and incorporated in the thesis has been
duly acknowledged.

I understand that I myself could be held responsible and accountable for

Plagiarism, if any, detected later on.

Signature of the candidate

Date:

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 ACKNOWLEDGEMENT

I am using this opportunity to express our gratitude to everyone who supported

us throughout the course of this research project. I am thankful for their aspiring
guidance, invaluably constructive criticism and friendly advices during the
project work.

I express my warm thanks to K. Nageshwara Rao for his support and guidance.

I would further like to thank Director Sir and all the people of Symbiosis Law
School (Hyderabad) who provided me with the facilities being required and
conductive conditions to complete my project.

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 TABLE OF CONTENTS

INTRODUCTION.................................................................................................................... 5

DEFINITION AND FUNCTIONS OF BANKS .................................................................... 5

i. What is a bank?............................................................................................................. 5

ii. Functions discharged by a public sector bank ........................................................... 6

SCHEME OF AMALGAMATION OF BANKS .................................................................. 6

EVOLUTION OF MODERN DAY PUBLIC SECTOR BANKS ....................................... 8

PUBLIC SECTOR BANKS MERGERS IN 2019................................................................. 9

Iii. List of PSU Banks after merger 2019 .................................................................... 10

iv. The need of merging ................................................................................................ 10

THE IMPACT OF THE MERGERS ON THE BANKS AND INDIAN ECONOMY .... 11

THE FUTURE ANALYSIS .................................................................................................. 13

v. 3 tier system to be introduced in banking structure ................................................ 15

UNDERSTANDING BANKING MERGER IN INDIAN ECONOMY ............................ 15

SUGGESTIONS AND CONCLUSIONS ............................................................................. 16

BIBLIOGRAPHY .................................................................................................................. 17

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 INTRODUCTION
Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as
the backbone of modern business. Development of any country mainly depends upon the
banking system. India’s banking sector is sufficiently capitalised and well-regulated. The
financial conditions and the economy in the present moment are far better than any country in
the world. Be it credit, market or liquidity risk studies and surveys, they all suggest Indian
banks have withstood the global downturn efficiently and can recover quickly from difficult
conditions. India is said to be one of the fastest growing economies in the world. The digital
payment evolved overnight after the Prime Minister’s measure of Demonetisation in 2016.
According to FSI reports, India developed the most in the 25 countries with India’s Immediate
Payment Services (“IMPS”) being the only one which is placed at Level 5 in the Faster
Payments Innovation Index (“FPII”). Also, RBI has allowed more features such as unlimited
fund transfers between wallets and bank accounts, these wallets are expected to become really
strong players in the financial ecosystem. The unorganised retail sector has a huge untapped
potential of adopting digital mobile wallets for payments, as per a report by the Centre for
Digital Financial Inclusion. Around 63 per cent of retailers are interested in using digital modes
of payment.
In 2017, Global rating agency Moody’s announced that the Indian Banking system was stable.
They also upgraded four Indian banks from Baa3 to Baa2. The government and regulator have
undertaken several measures to strengthen the Indian Banking sector. Such as a two-year plan
to strengthen the public sector banks through reforms and capital infusion of Rs 2.11 lakh crore
that will let the banks play a large role in the financial system by giving a boost to the MSME
sector. Lok Sabha has also approved Rs 80,000 crores of recapitalisation bonds for public
sector banks.

DEFINITION AND FUNCTIONS OF BANKS

I. WHAT IS A BANK?
Finance is the life blood of trade, commerce and industry. Now-a-days, banking sector acts as
the backbone of modern business. Development of any country mainly depends upon the
banking system. A bank is a financial institution which deals with deposits and advances and
other related services. It receives money from those who want to save in the form of deposits
and it lends money to those who need it. Banking Regulation Act, 1949 is deemed to be one
of the most important legal framework for banks. It was initially passed as the Banking
Companies Act, 1949 and it was eventually changed to the Banking Regulation Act, 1949

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(“The BR Act”). Along with the RBI Act, The BR Act provides a lot of guidelines to the banks.
They cover a wide variety of areas, some of the major provisions are:

 Banking is defined in Section 5 (i)(b), as acceptance of deposits of money from the

public for the purpose of lending and/or investment. Such deposits can be repayable
on demand or otherwise withdraw able by means of cheque, drafts, order or
otherwise;
 Section 5 (i)(c) defines a banking company as any company which handles the
business of banking.
II. FUNCTIONS DISCHARGED BY A PUBLIC SECTOR BANK
The basic function of any public sector or private sector bank is to mobilize the resources and
capitals garnered through various deposits and schemes for varied period and lend the same at
higher rates of interest to its own customers in order to garner more profit from the money. The
bank also provides facilities like lockers, remittance, draft creation, cheque collection and
transfer, bank guarantee credit to its esteemed customers. It also offers insurance and mutual
fund plans to its customers along with providing loan schemes and savings of their money. It
also acts as the body that carries the objective of the central government by providing facilities
to the people connected with the bank of the various government schemes, loans and pensions.
Recently the linking of lakhs of people with bank accounts through the ‘Jan Dhan Yojna’
programme is one such example of such objectives of the government, which needs to be
fulfilled by the banks over requirement. It is also responsible for the collection of taxes and
carrying various developmental schemes for the underdeveloped. It is also responsible for
providing banking facility to the rural and sub-urban areas in order to connect more and more
people with their individual bank accounts and increase business of the banks. It is the reason
behind the increasing number of rural branches of such nationalized banks over the country.
The motif of public sector banks doesn’t always remains profit making, but they also see
through the developmental aspect of the region they are operating in.

SCHEME OF AMALGAMATION OF BANKS

Amalgamation of banking companies in India is governed by the Banking Regulation Act,
1949, Reserve Bank of India (Amalgamation of Private Sector Banks) Directions, 2016
(‘Master Directions’), in addition to compliance with the provisions of the Companies Act,
1956 / 2013, Foreign Exchange Management Act, 1999, FDI Policy of Government of India,
Competition Act 2012 etc. Amalgamation of banks is subject to approval by The Reserve Bank
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of India (RBI) instead of the jurisdictional High Court / National Company Law Tribunal
(Tribunal). In this regard, RBI has recently issued a comprehensive Master Directions vide
[Link]. No. 96/16.13.100/2015-16 dated 21 April 2016 which contain guidelines on
amalgamation of two banking companies or amalgamation of Non-Banking Finance Company
(NBFC) with a banking company. The principles underlying these Master Directions are also
applicable to public sector banks. The banking companies have to mainly prepare for a scheme
of amalgamation, the draft copy covering the terms and conditions that needs to be given to all
the shareholders, every shareholder is to be informed of this decision. The decision of
amalgamation is required to be approved by two-third majority of the total Board members of
transferor and transferee bank. While according its approval, the Board is required to consider
several matters inter alia including the impact of the amalgamation on the profitability,
adequacy ratio, fairness and propriety of the swap ratio determined by independent valuers,
whether due diligence exercise has been undertaken in respect of the amalgamated company
etc. Subsequently, the draft scheme of amalgamation needs to be approved by majority
shareholders in number representing two-third majority of the shareholders of transferor and
transferee bank, present in person or by proxy at the respective meeting of the shareholders of
both banking companies convened for such purposes. After the scheme is approved by the
requisite majority of shareholders, it is required to be submitted to RBI for its sanction. In the
event of the scheme being sanctioned by RBI, dissenting shareholders, if any are entitled to
claim compensation from the banking company, within 3 months from the date of sanction of
the Scheme, in accordance with the value of shares to be determined by RBI for such purpose.
Once it has gotten the approval of the RBI, the assets and liabilities of the amalgamated
company pass on to the company to which it is amalgamated. The sanction of Amalgamation
by the RBI is shown to be as the conclusive proof of amalgamation.
Under Section 45 of the BR Act, the RBI can apply to the Central Government for an order of
moratorium towards a certain company only after giving some valid reasons. During the period
of moratorium, the RBI may prepare a scheme of reconstruction of the entity or a scheme of
amalgamation. Such a scheme can be prepared due to the following aspects:

1. In Public Interest
2. In Interests of the Depositors
3. To secure proper management of the banking company
4. In the interest of the banking system of the country.

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The scheme of amalgamation should be worked out keeping various provisions and schemes
in mind. The scheme should then be sent to the Government, Transferee Bank and other
concerned parties related to the amalgamation. The government will then first sanction the
scheme, only then should the scheme come in effect. Once sanctioned by the Government, the
scheme is binding on the banking company, transferee bank, members, depositors, and other
creditors as per the sanction. The sanction is a conclusive proof that the amalgamation or
reconstruction has been done in accordance with the relevant sections of the Acts. After the
amalgamation, the transferee bank should carry on doing business as prescribed by law. The
Government may order a moratorium on the banking entities on the application of the RBI.

EVOLUTION OF MODERN DAY PUBLIC SECTOR BANKS

Indian banking system has evolved from a caterpillar to a butterfly in the last two centuries.
They performed the usual function of lending money to traders and craftsmen and sometimes
placed their funds at disposal for the war chest of the kings. Modern day banking started around
the last decades of the 18th century, with the General Bank of India and Hindustan Bank
coming into existence. Then the three presidency banks were made which were – Bank of
Madras, Bombay and Calcutta. The presidency banks acted as quasi-central banks for quite a
while. They merged into what was called as Imperial Bank of India in 1925. The swadeshi
movement inspired the Indian business community to form banks of their own from 1906 to
1911. A number of banks established then have still managed to survive till date, which
includes Canara Bank, Indian Bank, Bank of Baroda and the Central Bank of India etc. The
two other major events in the modern banking era are the nationalisation of 14 largest
commercial banks in 1969, through the Banking Companies (Acquisition and Transfer of
Undertakings) Ordinance, 1969. Later another set of 4 banks were merged, taking this count to
20. At this point, more than 90% of all banking business in India was controlled by Government
of India. Post the government’s liberalisation policies, a host of private players entered into the
India banking market where RBI made sure that they were being closely watched and strictly
regulated. Further, there were regular checks on the compliance of various guidelines and any
irregularities would have led to the disqualification of their licences. Public Sector Banks are
such financial entities in our country in which the majority stake is with the central government,
which should be more than 50%. Since the year 2002-03, due to the economic growth and other
financial factors globally, the public sector banks have shown phenomenal business and a
growing profit has been registered since then by these banks, which is continuing even today.

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 PUBLIC SECTOR BANKS MERGERS IN 2019
Fifty years after nationalisation the banks the government on August 30, 2019 announced the
biggest overhaul in a public sector space the present Finance Minister Nirmala Sitharaman
unveiling a mega plan to merge 10 public sector banks into four as part of plans to create fewer
and stronger global-sized lenders as it looks to boost economic growth from a six-year low.
Finance Minister announced four new set of mergers –
Punjab National Bank, Oriental Bank of Commerce and United Bank of India will combine to
form the nation's second-largest lender; Canara Bank and Syndicate Bank will merge; Union
Bank of India will amalgamate with Andhra Bank and Corporation Bank; and Indian Bank will
merge with Allahabad Bank.
Post the mega merger, here are the six PSU banks that will remain independent: Indian
Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sind Bank, which have
strong regional focus, will continue as separate entities. Bank of India and Central Bank of
India will also continue to operate separately as before.

Oriental Bank of Commerce and United Bank merger will merge into Punjab National Bank to
create a bank with ₹17.95 lakh crore business and 11,437 branches. PNB will be the anchor
bank in this merger. She also announced the contours of a Rs 55,000-crore recapitalisation plan
for the entities that are to be merged as well as the six — Bank of India, Central Bank, Punjab
& Sind Bank, Indian Overseas Bank, Bank of Maharashtra and Uco Bank — which are not part
of the consolidation plan. What’s also noteworthy is the fact that the government has
announced capital infusion worth more than 55,000 crore into public sector banks (PSBs).
The table below shows the amount distributed among the PSBs
PSBs Capital Infusion (In ₹)
PNB 16,000 Crore
Union Bank of India 11,700 Crore
Bank of Baroda 7,000 Crore
Indian Bank 2,500 Crore
Indian Overseas Bank 3,800 Crore
Central Bank of India 3,300 Crore
UCO Bank 2,100 Crore
United Bank of India 1,600 Crore
Punjab and Sind Bank 750 Crore

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III. LIST OF PSU BANKS AFTER MERGER 2019
Anchor Banks to be Merged with Anchor Bank Combined
Bank Domestic
Branches
Punjab Oriental Bank of Commerce + United Bank 11,437
National
Bank
Canara Bank Syndicate Bank 10,342
Allahabad Indian Bank -
Bank
Bank Of Dena Bank +Vijaya Bank 9,490
Baroda
Union Bank Andhra Bank + Corporation Bank 9,609
State Bank of State Bank of Bikaner and Jaipur (SBBJ) + State Bank of 24,000 branches
India (SBI) Hyderabad (SBH) + State Bank of Mysore (SBM) + State (approx)
Bank of Patiala (SBP) + State Bank of Travancore (SBT) +
Bharatiya Mahila Bank

IV. THE NEED OF MERGING

The Finance Minister stated that "Twelve solidly present, well-consolidated, energised,
adequately capital endowed banks will now operate... Banks with a strong national presence
and global reach is what we want.” The second announcement of the government in as many
weeks comes at a time when the economy has slumped to its slowest pace in 25 quarters,
prompting the government to unleash measures to speed up economic activity.
The Narasimham Committee that mooted the merger of public sector banks way back in 1991.
Last year, the government had merged Dena Bank and Vijaya Bank with Bank of Baroda,
creating the third-largest bank by loans in the country. The Public Sector bank merger is to
combat the effects of a dull economy. The entire exercise was delayed as the state-run banks
had seen massive loan impairment due to corporate defaults, pushing several of them into
losses. While there were only four profitable public sector banks in the fourth quarter of 2018-
19, 14 are now in the black.

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THE IMPACT OF THE MERGERS ON THE BANKS AND
INDIAN ECONOMY
After the mergers, the country will have 12 public sector banks, including State Bank of India
and Bank of Baroda. The merger of Syndicate Bank with Canara Bank will create the fourth
largest public sector bank with ₹15.20 lakh crore business and a branch network of 10,324.
Andhra Bank and Corporation Bank's merger with Union Bank of India will create India's fifth
largest public sector bank with ₹14.59 lakh crore business and 9,609 branches. The merger of
Allahabad Bank with Indian Bank will create the seventh largest public sector bank with ₹8.08
lakh crore business with strong branch networks in the south, north and east of the country as
claimed by the finance minister.
The merger of PSU banks has its share of merits and demerits. The addition of staff and network
is the effect that can be easily gauged from the impending merger move. What else can emerge
due to the merger? If consolidation of banks takes place, then banks will have higher asset
strength & increase in the capital base. Also, the problem of Non-Performing Assets (NPAs)
& other problem like Capital Requirement which are faced by the banks can be resolved to
some extent. These new entities will control “two-thirds of India's banking in terms of advances
and deposits are meant to create a stepping stone to India's $5 trillion GDP target.”

Merits of Merger

 A large capital base would help the acquirer banks to offer a large loan amount
 Service delivery can get improved
 Recapitalization need from the government to reduce
 Customers will have a wide array of products like mutual funds and insurance to choose
from, in additional to the traditional loans and deposits
 Technological up gradation on the cards
 Volume of inter-bank transactions will come down, resulting in saving of considerable
time in clearing and reconciliation of accounts.

Demerits of Merger

 It would be tough to manage issues pertaining to human resource

 Few large inter-linked banks can expose the broader economy to enhanced financial
risks
 The local identity of small banks won’t be that prominent

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  There will be some greater financial risks for the broader economy because of a few
large inter-linked banks.
 Human Resource issues will be difficult to manage. Career growth of senior
management and other workers could attract problems.
 May also create distress within the bank employees.
 It will weaken the PSB’s & encourage private sector banking.
The government said banks have been asked to ensure that the there is no disruption of banking
activity and loan flow to the economy is not impacted. There will be no retrenchment post-
merger and also ruled out the possibility of bringing in Voluntary Retirement Scheme (VRS).
The government has listed three broad gains from the consolidation. They called it 'Unlocking
potential through consolidation'.
The first benefit is enhanced capacity to increase credit. The consolidated entities will have a
higher capacity to lend, but also need capacity building, especially in project appraisal, risk
management and monitoring. A bank like SBI, with its huge balance sheet, has also found itself
in trouble with similar asset quality issues as other PSBs.
The second gain the govt claimed is strong national presence and global reach. But these PSBs
already control two-thirds of all banking in India. As far as global reach goes, Indian banks
have a lot to catch up. Competition from private banking institutions is eating into the share of
PSBs, thanks to better digitisation, faster processing of loans, and much better customer
service.
The third potential gain is the operational efficiency gains that reduce the cost of lending. This
is one area where the entire operating model has to change. PSBs still operate in an old
fashioned manner. Banking has changed significantly in the last decade, with product-focused
banks. We now have retail banks, small finance banks, payments banks and more. Meanwhile,
PSBs seem to be caught in the relatively outmoded loop of corporate banking while private
banks are exiting the space due to asset-liability management issues.
The PSB model of banking with government ownership, control and also lending support to
government's agenda (priority sector, financial inclusion, Mudra, etc.) has been a big stumbling
block for bringing about a change in their functioning. The merger announcement doesn't
address the core structural and fundamental issues plaguing the PSBs. The mergers are mostly
among larger banks with absorbing bank not necessarily in strong health.” They all face similar
issues like falling profitability, asset quality deterioration, an ageing workforce, and laggardly
approach to digitisation. They all are also corporate banks in nature while retail banking is still
very small. The biggest advantage is that bigger banks have greater ability to absorb shocks,

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reap economies of scale as well as the enhanced capacity to raise resources without depending
on the exchequer.
PNB’s MD and CEO, Sunil Mehta, said this merger will be beneficial for the banking system,
and the country as a whole. He said the merger of three banks will bring a lot of synergies into
the existing entities and that the capital infusion announced by the government for the merged
entity is adequate. He added, “All the requirements of the bank, including the minimum
regulatory requirement as well as the growth requirements have been completed while working
out the Capital infusion.”
Canara Bank MD and CEO RA Sankara Narayanan said the move will provide better
opportunities to do quality business. He explained, “we will be taking the proposal to the board
in the next 7-10 days, and once we get the approvals from the government and the gazette
notifications, the actual integration may happen sometime. Kuntal Sur, partner at PwC India,
said, “All these banks were thin at the top because they were struggling to get good quality
GMs and CGMs, and these mergers will create the bandwidth for better midmanagement. This
will, in turn, help in better loan monitoring, overseeing the end-use of funds, and better
recovery.”
Coupled with the ongoing moderation in growth for private banks led by auto sector slowdown
and increased cautiousness, credit growth, thus, is unlikely to be revived by PSB mergers." It
explained that the merger is unlikely to meaningfully revive the flow of credit to the liquidity
pressed NBFCs - given the already high share of NBFC exposure in constituent banks, the four
new entities will have more than 10% of their loan exposure towards NBFCs. About cost
synergies, the report said that “the limited flexibility on restructuring and rationalisation
indicates that meaningful cost synergies from PSB mergers are unlikely. While the large
recapitalisation improves the capacity for banks to grow loans, recent experience of State Bank
of India and Bank of Baroda indicates that focus on integration impacts near-term growth.

THE FUTURE ANALYSIS

The researcher is looking at the merger in some detail, what it means for the sector, and also
taking a look briefly at what the future could look like for the banking sector in [Link]
government has seriously considered to reduce the number of public sector banks (PSUs) from
the existing 21 to 12 with a view to creating 3-4 global sized banks. Regional centric banks like
Andhra Bank and Punjab & Sind Bank would continue to exist as independent entities. The
same will go with some mid-sized banks.

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What’s giving more fodder to the government to go ahead with the merger is the grand success
SBI achieved by combining its five associate banks and Bhartiya Mahila Bank to form a single
entity. The five associate banks included State Bank of Bikaner & Jaipur (SBBJ), State Bank
of Hyderabad (SBH), State Bank of Travancore (SBT), State Bank of Patiala (SBP) and State
Bank of Mysore (SBM).
By virtue of the merger, SBI got into the hall of fame by making an entry into the list of 50
banks in the world. The merger has helped the bank take its customer count to 37 crores and
add a vast network branches and ATMs that went up to 24,000 and 59,000, respectively.
According to several reports in the media, top PSU lenders like Punjab National Bank (PNB),
Bank of Baroda (BoB), Bank of India (BOI), Canara Bank and Union Bank of India would take
under their umbrella some 3-4 banks to create a large entity and would have a massive
distribution channel to boast of. The merger will add to the operational strength of the PSU
banks. Hit by a $2 billion fraud and money laundering case centering around fugitive diamond
merchant Nirav Modi, the merged PNB's deposit market share will jump to 8% as compared to
its standalone market share of 5.2% as of March 2019. The banking sector has been seeing
reduced recruitment over the years and the government's move may impact engineering
graduates the most as a majority of applicants are from that stream. Reduction in fresh
recruitment will be a natural consequence of any merger as a rationalisation of branches and
staff will have to be worked out to optimise resources. India will have 6 large public sector
banks with Rs 10 lakh crore-plus balance sheets, two national banks and four regional banks.
So, see in the table where will the PSU banks stand if the proposed merger structure does take
effect.
Table Showing the Merger List of PSU Banks
Acquirer Banks to be Merged Staff Count Asset
Banks (Approx.) Count
(Crores)
(Approx.)
PNB Oriental Bank of Commerce (OBC), 1,50,000 2,60,000
Allahabad Bank, Corporation Bank, Indian
Bank
Bank of Vijaya Bank, Dena Bank 85,675 6,40,600
Baroda
Bank of India Andhra Bank, Bank of Maharashtra 94000 10,90,0000

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 Canara Bank UCO Bank, Syndicate Bank, Indian 1,40,000 13,82,000
Overseas Bank
Union Bank IDBI, Central Bank of India 1,04,000 11,80,000
of India

V. 3 TIER SYSTEM TO BE INTRODUCED IN BANKING STRUCTURE

The 1st tier constitutes of at least 3-4 banks of the size of SBI. Tier 2 will constitute of some
region-centric banks like Punjab and Sind Bank (BSE 2.55 %) and Andhra Bank (BSE 0.88 %)
which continue as independent entities. At the same time, 3 Tier will have some mid-size
lenders.
Product differentiation is completely missing and it seems the technology platform was one of
the major drivers for deciding the banking mix of banks. Do we need more clones of each
other? Experts suggest there should be a differentiation in terms of product category, say SME
or emerging corporate-focused banks or purely retail banks or large corporate banks. Currently,
there are specialised banks in the market. For instance, HDFC Bank, Kotak Bank, etc. are
emerging as retail banks. There are Bandhan Bank and a host of small finance banks that are
focused on catering to unbanked and underserved segments of microloans. In a slowing
economy where the asset quality deterioration of PSBs has still not receded, the merger move
could be counterproductive.

UNDERSTANDING BANKING MERGER IN INDIAN

ECONOMY
The Merging of banking is considered as a step towards development in the banking sector.
Such mergers give opportunities like raising fresh capital, changing the hiring policy etc. to the
government. It is the widest rearrangement of the banking sector since the nationalisation of
14 banks in July 1969.
The Narasimham Committee that mooted the merger of public sector banks way back in 1991.
In 2017 there were 27 Public Sector Banks including IDBI where LIC is presently the majority
shareholder. The Centre’s recent big bank merger announcement — after the merger of SBI
with its five associate banks two years ago, and Bank of Baroda with Dena Bank and Vijaya
Bank last year — has finally made this a reality. State-run Bank of Baroda is presently India’s
second largest public sector bank after its merger with Dena and Vijaya Bank respectively. The
amalgamation of the two lenders with BOB, has been effective from 1 April, 2019. This is the

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first three-way merger of the banks in India, making the combined geographical reach of 9,490
branches, 13,400 ATMs with 85,678 employees serving 120 million customers.
All the branches of Dena and Vijaya Bank will function as branches of Bank of Baroda and the
customers of both banks will be treated as customers of BOB. In addition to this, the customers
will also continue to use the same account number, IFSC Code, MICR Code along with their
current cheque books and ATM cards. After this three-way merger, the combined entity will
have deposits and advances of Rs.8.75 lakh crore and Rs.6.25 lakh crore respectively. Not only
this, the merger also helps BOB increase its reach in the Western, Southern and North-Eastern
regions of India such as Maharashtra, Karnataka, Gujrat, Kerala, Tamil Nadu and Andhra
Pradesh. Well, if experts are to be believed, the new Bank of Baroda will improve customer
base, market reach, operational efficiency and a capacity to offer a wider bouquet of products
and services to the customers. Hit by a $2 billion fraud and money laundering case centering
around fugitive diamond merchant Nirav Modi, the merged PNB's deposit market share will
jump to 8% as compared to its standalone market share of 5.2% as of March 2019. The central
government had to consult the RBI before formulating a plan for PSB merger, according to the
Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980. Other
measures are being taken which were intended to help lift India’s economy as an increasing
number of indicators show it slowing down. Gross NPA level has come down heavily and that
the centre is monitoring large loans to avert frauds. The sanctioning and monitoring of loans
have been separated, and special agencies have been formed to monitor loans above Rs 250
crore to avoid a Nirav Modi-like situation.

CONCLUSION
This initiative is a welcome move in the right direction...One of the causes for the slowdown
was the reduction in lending following the financial problems we saw from the IL&FS issues
since last September. Consequently, the banks started going slow on lending to NBFCs, which
in turn did not have the money to lend for purchases of cars, two-wheelers, houses, etc. That
aggravated the slowdown caused by poor and erratic monsoon as well as the lingering effects
of demonetisation and GST. This initiative by the central government is a measure to help
improve banks in their capital adequacy. In its bid to create "NextGen banks", the finance
ministry has decided to merge 10 public sector banks into four. The merger of United Bank of
India (UBI) and Oriental Bank of Commerce (OBC) with Punjab National Bank (PNB) will
give birth to India's second largest public sector bank after the State Bank of India (SBI). The
PNB merger, which will make the bank bigger than Bank of Baroda (BoB). Hit by a $2 billion

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fraud and money laundering case centring around fugitive diamond merchant Nirav Modi, the
merged PNB's deposit market share will jump to 8% as compared to its standalone market share
of 5.2% as of March 2019. A major move that is set to redefine India’s banking space. The
Finance Minister says there will no job loss due to the merger. But the real issue is the creation
of new jobs, which will be hit. Banks have been a major recruiter over the years, as per Institute
of Banking Personnel Selection (IBPS). Reduction in fresh recruitment will be a natural
consequence of any merger as a rationalisation of branches and staff will have to be worked
out to optimise resources. All this is expected to play out only after a year or so as the process
is expected to be time consuming. Consolidation has generally been near-term detrimental to
the stronger (acquiring) banks and an extended integration period remains a challenge. The
merger is being undertaken in order to revive and revitalise the banking sector to stay on course
for the govt’s stated target of touching $5 trillion as an economy. Apart from the merger, the
centre announced that Rs 55,250 crore upfront capital will be infused into the PSBs. Rollback
of the super-rich tax on foreign and domestic equity investors, exemption of start-ups from
'angel tax', a package to address distress in the auto sector...in an effort to boost growth besides
the infusion of capital into public sector banks. ministry of finance, and the more on processes
considering the many statutory and legal stipulations involved in a merger. Many senior pros
across all the banks are involved in the world on the mergers. The incident of large banks taking
over control of small banks to dominate the process is uncalled for. Although best practices of
various banks will be adopted to get business benefit for an organisation, post-merger. The
priority is minimal disruption to business and customers.

BIBLIOGRAPHY

1. After merger, there will be 12 PSU banks: Here is the full [Link]
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