RECENT BANK MERGERS IN INDIA AND IMPACT ON ECONOMY: A

BRIEF ESSAY

POTLURI RAKSHIT KESHAV

Christ (Deemed to be University)

8th February 2020

Abstract:
This essay paper aims to analyze and understand the recent bank mergers in India, by reflecting
about why a similar step was taken several times in the past, why is such a merger announced
mow and what implications it could have on the contours of the banking sector and from a macro
perspective, on the economy as a whole. This paper aims to critically elucidate the merits and
demerits of such a move and its consequent impact on financial systems and services in the
country.

Introduction:
The government of India, on August 30th, 2019 had announced amalgamation of 10 public
sector banks into four big banks.This will bring the total number of banks to 12 from 27 in 2017.
This is not the first time banks have been amalgamated in India; the Government of India issued
the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969
and nationalised the 14 of the largest commercial banks on 19 July 1969. Similarly 6 more
commercial banks were nationalized in 1980. On 1st October 2017, State Bank of India was
merged with its five associate banks which are State Bank of Bikaner and Jaipur, State Bank of
Patiala, State Bank of Raipur,  State Bank of Hyderabad, State Bank of Travancore, as well as
with Bhartiya Mahila Bank (BMB). On 31st March, the government merged Dena Bank and
Vijaya Bank with Bank of Baroda.

Explanation:
Some features of the new plan are: Firstly, Punjab National Bank becomes 2nd Largest Bank:
Oriental Bank of Commerce and United Bank merger into Punjab National Bank will create a
bank with ₹17.95 lakh crore business and 11,437 branches, Secondly 4th is the merger of
Syndicate Bank with Canara Bank with ₹15.20 lakh crore business and a branch network of
10,324, Thirdly, 5th Largest Bank: Merger of Andhra Bank and Corporation Bank with Union
Bank of India will create India's fifth largest public sector bank with ₹14.59 lakh crore business
and 9,609 branches, Fourthly, 7th is the merger of Allahabad Bank with Indian Bank with ₹8.08
lakh crore business having strong branch networks in the south, north and east of the country,
Fifthly, The untouched banks are Bank of India, Central Bank of India, Indian Overseas Bank,
Uco Bank, Bank of Maharashtra and Punjab & Sind Bank which will continue as separate
entities as before, Sixthly, India has 12 Banks Now
There are several reasons for the mergers like ; Firstly, Big banks with
increased capital to increase credit and bigger risk appetite, with national presence and global
reach, Secondly, The government is trying to create big next generation banks, Thirdly,
Government’s intention not just to give capital but also give good governance, Fourthly, There is
no government interference in commercial decisions, Fifthly, To decrease Gross NPA level,
Sixthly, To monitor large loans to avert frauds, 7.Government steps to achieve a target of $5
trillion economy.
The advantages of these mergers are :Firstly, Larger Bank is capable of
facing global competition, Secondly, The merger will reduce the cost of banking operation,
Thirdly, Merger will result in better NPA and Risk management, Fourthly, Merger will help in
improving the professional standards, Fifthly, Decisions on High Lending requirements can be
taken promptly, Sixthly, Bank staff will be under single umbrella in regard to their service
conditions and wages instead of facing disparities.
However, the decision is not without its fair share of limitations such as
:Firstly, Compliance needed in every decision which might not be favorable as thinking
perspectives and risk taking abilities of different organizations are different, Secondly, If
customer perception is not managed with frequent and careful communication it may lead to loss
of business, Thirdly, Risk of failure increases if the executives are not committed enough in
bringing the merger platforms together for the merging and taking over bank, Fourthly, Many
banks currently focus on regional banking requirements. With the merger the very purpose of
establishing the bank to cater to regional needs is lost, Fifthly, With the merger, the weaknesses
of the small banks are also transferred to the bigger bank.

Conclusion:
Thus to conclude, the intention of the government to merge the banks is right, but merger can
create variety of problems which can cause great damage if the process is not executed properly.
Thus the move has to be carefully implemented.
References:
1. ET Online, (30/8/2019),
https://economictimes.indiatimes.com/news/economy/policy/nirmala-sitharaman-announces-
fresh-reforms-special-agencies-to-monitor-loans-above-rs-250-crore-to-avert-another-nirav-
modi-like-situation/articleshow/70909169.cms?from=mdr
2. Tabassum, Huma, (September 30, 2017)https://www.news18.com/news/business/state-bank-
of-india-to-merge-state-bank-of-patiala-hyderabad-raipur-bikaner-and-jaipur-and-bhartiya-
mahila-bank-from-october-1-4-things-you-must-know-1532633.html
3. Agrawal, Amol, (September 05 2019), https://www.bloombergquint.com/opinion/the-
origins-of-the-great-indian-bank-merger
4. https://www.mbauniverse.com/group-discussion/topic/business-economy/banks-merger-in-
india