(1st person)

Slide 1: Good evening, Our topic is Merger of Public sector Banks

Slide 2
With the changing Environment many different strategies have been adopted by the
banking sector to remain efficient. One such strategy is through the process of consolidation
of banks. There are several ways to consolidate the banking industry; the most adopted by
banks is merger. Mergers are a faster and less costly way to improve profitability of banks.
The largest ever merger in the public sector banking space in India took place on April 1st,
2020. India has only 1 bank which features in the list of top 100 banks in the world and that
is SBI. The merger of public sector banks (PSBs) involves integration of six weaker PSBs with
four better performing ‘anchor’ banks. Indian government has a target of making India a 5
trillion-dollar economy and all well capitalized well provisioned banks are needed to support
the 5 trillion economy. Mergers also resulted in superior performance than the premerger
period which we will see in further slides.

Slide 3
Post 1991 reforms’ effects on PSU Bank mergers

Narsimham committee had recommended mergers to form a four-tier structure. The idea of
having large banks that can be globally competitive, regional banks that serve specific
purposes, niche banks that cater to communities, and finally new small banks and payments
banks owes its genesis to this report. We are watching all of them three decades down the
line.
The reforms introduced were such as:
1) to assess the financial position of banks, introduction of rules of income recognition, asset
classification and supervision through CAMELS approach
2)There was excessive control on interest rates, now banks are given free reign to decide
above the fixed lending rate by RBI.
3) Increasing competition within the banking sector was an integral part of the reforms as a
means of promoting efficiency in the sector so deregulating the existing system was
required which paved the way for today’s banking system.

Slide 4 – Roadmap of bank mergers

In the year 1969, 14 major Indian Commercial Banks with deposits of over Rs 50 crores to
serve better to the needs of development of the economy in conformity with national policy
objectives. These banks contained 85 percent of bank deposits in the country. From 1969 to
1991 post nationalization period. It saw 6 private banks being nationalized and 13 mergers
took place between private and public banks. The merger of OBC with Global Trust bank in
2004 saved the later after its net worth had wiped off. Mergers of PNB with the then eroded
New Bank of India in 1993-94 also proved to be life saving for the weaker bank. SBI merged
with 7 of its associate banks, once known as seven sisters. The vision was to have a strong
bank rather than a lot of banks. In a first three-way amalgamation, Vijaya Bank and Dena
Bank merged with BoB from April 1 2019 to create the third-largest lender of the country.

(Person 2)
Slide 5-why need Mergers?
First I would like to define what is merger-The merger is a situation in which
two banks pool their assets and liabilities to become one bank. Because this
can have a significant impact on the financial industry, there are a lot of
regulations that govern these changes to provide a catalyst in the process of
the banking sector.
According to RBI, frauds reported by (PSBs) in 2018 -19 were 5,743 involving a
total amount of approx. 95000 crores. The banking system is plagued with high
levels of NPAs. Though India being 5 th largest economy, it has the highest bad
loan ratio after Italy. This is because Government-controlled lenders are
estimated to be holding approximately 90 percent of such NPA. The losses
incurred were more than Rs. 20,000 crores by the four PSBs after which the
government planned their merger.
The other benefits of bank engaging in merging are :-
 It will be easier for the government to keep a check over the enlarged
institution and also protection of financial system.
 The merger would increase the efficiency of performance and value of
the companies when they are combined.
 And finally By merging the banks, the potential competitors will be
absorbed into one entity and hence reduction in competition.
Slide 6
Impact on Economy, Employees and Bank Operations
India Being the 5th largest economy, should have at least six banks in the top
100 global list and this is one of the reason the government wants to achieve
by consolidating PSU banks. Efficiency in banking will increase and the earlier
NPAs can be securitized with changed refinancing under the Merged PSU. As
consolidation will prevent more resources being spent in the same area and
strengthen banks to deal with shocks From the employees prospective, the
government has maintained its stance that there will be no termination of
bank employees. Yet there has been strikes conducted by the PSU bank
employees with the fears of lack of promotion and relocation. Government
has adopted 2 methods VRS and Redeployment scheme to tackle influx of
employees functioning at same designation and to improve Business
Employee ratio. Credit portfolio including NPA has been declining post
merger.

(Person 3)

Slide 7
Performance of merged banks as of 2020
After the merger, SBI has gained more market share and consequently, it is the market
leader. PNB which was ranked 3 rd pre merger was able to capture 2 nd rank by pushing Bank
of Baroda to 3rd place with the market share of 7.7%. With the help of merger, the weaker
banks like OBC and Allahabad Bank have been amalgamated with the respected anchor
banks. This helped them in several ways like default risk, credit portfolio and better
efficiency. For example, United Bank of India, which had a large presence in the eastern
region, will now benefit from the more diversified branch network of PNB that had a vast
network in the northern and central region before the merger.

Slide 8
Net interest income and Net Profit
Here we are going to compare the 2020 values with 2021 values.
So, Net interest income is a financial performance measure that reflects the difference
between the revenue generated from a bank's interest-bearing assets and the expenses
associated with paying on its interest-bearing liabilities. On the income side, the interest
income was the major component of the total income of Scheduled Commercial Banks
comprising more than 80 per cent of the total income.
As you can see from the bar graph, there is a significant increase in the net interest income
of the banks which has undergone the merger PNB, Canara, Union and Indian.
If we check the net profit graph, there is also a significant increase in the profit of the
merged banks as compared 2020.

(Person 4)
Slide 9
Deposit growth and Credit Growth
Aggregate deposits of Scheduled Commercial Banks rose in 2020 by 11.9% vs 9.7 % by 2021.
From the graph we can infer that the deposit growth during the year 2020 was less
compared 2021. CASA deposits grew at a faster pace than term deposits, possibly reflecting
the propensity of savers to hold more liquid assets in current pandemic situation
Bank credit growth remains subdued. During 2020-21, bank credit increased by 5.4 per cent,
which was the lowest in the last four financial years and it remains subdued in Q1:2021-22.
Credit growth of PSBs and PVBs increased by 3.2 percent and 9.9 percent respectively,
whereas the loan book of foreign banks (FBs) remained flat as on June 2021. The overall
credit to deposit (C-D) ratio continued on its declining trajectory. The incremental CD ratio
recorded an improvement during Q4:2020-21 but turned negative in Q1:2021-22

Slide 10
How Banks are fighting NPAs?
Gross NPA of commercial banks was at 2.4% of gross advances at the end of March 2011.
By March 2018, the ratio hit a peak of 11.5%. For a few public sector banks, one-third of
their loans had turned sour. Merging of banks may not directly reduce NPAs but will consolidate
resources. Now i will speak about how the mega bank merger has reflected on the participant banks.

 For PNB, Gross NPA declined by around 0.5% as of March 21. Lender has not
classified any account that was not an NPA as on August 31, 2020 which was quite an
achievement of the merger.
 For Indian bank, the asset quality profile improved with gross NPAs down to 9.85 per
cent in March 2021. Its capital profile is robust, the bank will likely raise equity
capital for growth. interest income reversal for bad loans impacted the NIM in
Q4FY21.
 For union bank - The bank saw its asset quality improve with Gross NPAs decline to
13.74 % as of march 2021. As against 14.15 per cent by the end of corresponding
period previous fiscal. Provision coverage ratio improved to 81.27 per cent(2021) as
against 78.21(2020)
  But for Canara bank, On the asset quality, gross NPAs continued to remain at an
elevated level of 8.93 per cent at the end of March 2021, slightly higher than 8.21
per cent by the end of March 2020.

(Person 5)

SLIDE 11
MERITS & DEMERITS
Some of the merits of merging includes:-
· A large capital base would help the acquirer banks to offer a large loan amount and
will help in sustainable growth
· These big banks would also be able to compete globally and increase their
operational efficiency by reducing their cost of lending.
· Customers will have a wide array of products like mutual funds and insurance to
choose from
· If banks have sufficient money to fund big projects then the economic development
of the country would speed up.
· And other advantages like increase in market share and goodwill
Demerits that are concerned are-

· Few large inter-linked banks can expose the broader economy to enhanced financial
risks
· Merger destroys the idea of decentralization as many banks have a regional
audience to cater to
· And also banks going bankrupt is an added risk that come with merging

Slide-12
Conclusion
• There are still Six Banks which are untouched during the 2020 Merger
• From those six banks Two are national banks and the four have regional focus. These
banks are Bank of India, Central Bank of India, Indian Overseas Bank, UCO Bank,
Bank of Maharashtra and Punjab & Sind Bank
• Government is planning to privatization of two PSB. NITI Aayog, in consultation with
the Finance Ministry, has started deliberations to finalize the names of two public
 sector banks that will be privatized in the current fiscal as part of the disinvestment
process.
• If in such a dismal year the banks could put up such a bright show, in a booming
economy which is likely to come up in the next 1-2 years the PSBs are expected to
ramp up even further.

Here are some of the references which we have used to prepare slides.

Question 1
If banks are performing good after the merger then why government is going for the
privatization of PSB.

Answer - For banks, it means more competition in the market and lesser to negligible
financial dependence on government funds. It has been widely reported for a long time that
some of the state-run banks not been performing to their potential due to a variety of
reasons and are heavily dependent on the financial support provided by the central
government. The reported increase in the NPAs (Non-Performing Assets) of some of the
PSBs continues to pose working challenges and can get classified as bad debts over a period
of time.

Employees are fearful due to the 3 reasons:

1. Privitatzion fears