Mega-merger of 10 state-run banks into 4 larger PSBs comes into effect

The mega-merger of 10 state-run banks into four larger PSBs came into effect on Wednesday, April 1. This includes the amalgamation of Oriental Bank of Commerce and United Bank of India into Punjab National Bank; Syndicate Bank into Canara Bank; Andhra Bank and Corporation Bank into Union Bank of India; and Allahabad Bank into Indian Bank.

The Union Cabinet chaired by Prime Minister Narendra Modi had approved the consolidation in Public Sector Banks (PSBs) on March 4 with effect from April 1, 2020. 

After the consolidation of these banks, India will now have 12 Public Sector Banks from 27 PSBs in 2017. The government had said the amalgamation would result in the creation of seven large PSBs with scale and national reach with each amalgamated entity having a business of over Rs 8 lakh crore. 

Here are the four new banks:

1- Punjab National Bank, Oriental Bank of Commerce and United Bank merged to form the second-largest public sector bank with the business of Rs 17.95 lakh crore. All branches of Oriental Bank of Commerce and United Bank of India will function as branches of Punjab National Bank from today. Customers, including depositors of Oriental Bank of Commerce and United Bank of India, will be treated as customers of Punjab National Bank.

2- The merger of Canara Bank with Syndicate Bank form the fourth largest Public Sector Bank with a business of Rs 15.20 lakh crore. All branches of Syndicate Bank will now start functioning as branches of Canara Bank. Customers, including depositors of Syndicate Bank, will be treated as customers of Canara Bank.

3- Union Bank of India merged with Andhra Bank and Corporation Bank to become the fifth-largest public sector bank now with a total business of Rs 14.59 lakh crore. All branches of Andhra Bank and Corporation Bank will function as branches of Union Bank of India from today. Customers, including depositors of Andhra Bank and Corporation Bank, will be treated as customers of Union Bank of India with effect from April 1, 2020.

4- Indian Bank merges with Allahabad Bank to form the seventh-largest Public Sector Bank with a business of Rs 8.08 lakh crore. All branches of Allahabad Bank will function as branches of Indian Bank from April 1, 2020. Customers, including depositors of Allahabad Bank, will be treated as customers of Indian Bank.

Purpose of mega-merger

Finance Minister Nirmala Sitharaman had in August last year announced that 10 state-run banks would be merged into four larger PSBs. Announcing the move, Sitharaman had said the creation of next-generation banks was imperative for India to become a US $5 trillion economy in the next five years.

Here is everything you need to know about new PSBs

The mega consolidation would help create banks with a scale comparable to global banks and capable of competing effectively in India and globally, the government had said in a statement. 

"Greater scale and synergy through consolidation would lead to cost benefits which should enable the PSBs to enhance their competitiveness and positively impact the Indian banking system," it said. 

"Consolidation would also provide impetus to amalgamated entities by increasing their ability to support larger ticket-size lending and have competitive operations by virtue of greater financial capacity. The adoption of best practices across amalgamating entities would enable the banks to improve their cost efficiency and risk management, and also boost the goal of financial inclusion through wider reach," it added. 

Further, with the adoption of technologies across the amalgamating banks, access to a wider talent pool, and a larger database, PSBs would be in a position to gain competitive advantage by leveraging analytics in a rapidly digitalising banking landscape.