In big bank reform, 10 merged into 4

In the biggest consolidation exercise in the banking sector, the government on Friday announced the merger of 10 banks to create four global-sized banks. This brings the total number of government-run banks down to 12 from 27. The Centre also announced a capital infusion to the tune of Rs 55,250 crore.

"We are aiming at financially strong Public Sector Banks (PSBs)," Finance Minister Nirmala Sitharaman said while announcing the merger plan on Friday. "The consolidated PSBs will have a strong national presence and global reach," she added.

Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank (UB) will be merged, as also Canara Bank and Syndicate Bank. Union Bank, Andhra Bank and Corporation Bank will be consolidated, and Indian Bank and Allahabad Bank will coalesce. The minister said that in place of a fragmented lending capacity with 27 PSBs in 2017, there will be only 12 state-run banks.

The OBC-UB-PNB compound will become the second-largest PSB after the State Bank of India, with a business of Rs 17.95 lakh crore and 11,437 branches. The Syndicate-Canara merger will create the fourth largest PSB, with a Rs 15.20 lakh crore business and 10,324 branches. Andhra, Corporation and Union Bank will come together to become the fifth-largest PSB drawing a business of Rs 14.58 lakh crore with 9,609 branches. Allahabad Bank and Indian Bank's merger will create the seventh-largest bank with Rs 8.08 lakh crore business.

Six banks have been left untouched. Of them, Bank of India and Central Bank of India will continue to have a national presence. Similarly, the Indian Overseas Bank, UCO Bank, Bank of Maharashtra, and Punjab and Sind Bank will continue their regional focus.

Assuring that there will be no retrenchments, Finance secretary Rajiv Kumar said that employees will benefit from the mergers. "There was no retrenchment in the past consolidations and service conditions of employees improved," he said.

The Finance Minister assured that the banks will be provided with adequate capital. In the Budget, a capital infusion of Rs 70,000 crore was announced. On Friday, Sitharaman announced the following infusions: Rs 16,000 crore into PNB, Rs 11,700 crore into the Union Bank of India, Rs 7,000 crore into Bank of Baroda, Rs 2,500 crore into Indian Bank, Rs 3,800 crore into Indian Overseas Bank, Rs 3,300 crore into Central Bank, Rs 2,100 crore into UCO Bank, Rs 1,600 crore into United Bank and Rs 750 crore into Punjab and Sind Bank.

In January, the cabinet had approved the merger of Dena Bank and Vijaya Bank with Bank of Baroda, which became effective from April. Earlier, the Centre merged five associate banks of SBI and Bhartiya Mahila Bank with State Bank of India.

The Finance Minister also unveiled governance reforms in PSBs, saying their boards will be given autonomy and empowered for succession planning. Also, boards will be given the flexibility to fix the sitting fee of independent directors, she said, adding that non-official directors will perform role analogous to independent directors. This move was "to make the management accountable to the board, empower the board committee of nationalised banks to appraise the performance of general managers and higher functionaries, including managing directors," she said.

SBI chairman, Rajnish Kumar, hailed the move, saying, "Today's announcement is a cohesive and a clear recognition that bigger banks have that much more ability to absorb shocks, reap economies of scale as well as the capacity to raise resources without depending unduly on the exchequer. The announcements also underline the fact that the government recognises the importance of a robust banking system in achieving the goal of $ 5 trillion economy as bigger banks will be better armed to meet the credit needs of a fast-growing economy like ours."