Why are These PSU Banks Being Merged?

Here are the possible reasons behind the merger of these banks:

• Boosting Efficiency: Merging banks could help reduce costs and improve efficiency.
• Expanding Reach: A bigger bank could have more branches and be able to operate in areas that are currently underserved.
• Establishing Stronger Banks: The government could create larger and, more stable institutions by merging smaller banks. These help to manage big loans and compete with private banks.

Past Performance of These Banks

Let us take a look at the financial performance of these four banks from the recent quarters:

Government's Holdings

Here is the Government’s share in these four PSU Banks:

• Bank of Maharashtra: 86.46%
• Punjab & Sind Bank: 98.25%
• UCO Bank: 95.39%
• Central Bank of India: 93.08%

History of Merger in PSU Banks

Before the nationalisation of banks in 1961, Mergers and Acquisitions were not very common in the Banking sector of India. Banks usually operated independently without much coordination. However, after the nationalisation of the major commercial banks, the focus shifted towards expanding access to the banking sector and encouraging financial inclusion.

The first merger took place in 1969, when the Reserve Bank of India (RBI) pushed the merger of the New Bank of India with Punjab National Bank (PNB). At that time, the New Bank of India was struggling with liquidity problems. The process of integrating the two banks took many years for PNB to fully recover and stabilise.

Mergers in Indian Banking Sector

In recent years, the Indian banking sector has seen significant consolidation in the PSU space:

• April 2019: Bank of Baroda merged with Vijaya Bank and Dena Bank, forming the third-largest PSU bank.
• April 2020: Punjab National Bank merged with Oriental Bank of Commerce (OBC) and United Bank of India (UBI), becoming the second-largest PSU bank.
• Indian Bank absorbed Allahabad Bank.
• Canara Bank merged with Syndicate Bank.
• Union Bank of India merged with Andhra Bank and Corporation Bank.

State Bank of India (SBI), the largest public sector bank in India, has seen several mergers over the years:

• 2008: SBI merged with State Bank of Saurashtra.
• 2010: SBI merged with State Bank of Indore.
• 2017: SBI underwent a major merger, absorbing six associate banks and Bharatiya Mahila Bank.

Will There Be Any Difficulty With These Four Banks' Merger?

The merger will bring many challenges and issues for the government. Here are the potential challenges that can be faced by the government:

• Temporary Disturbance: The customers can experience short-term disruptions due to the bank closure or changes in bank account information.
• Take Several Years: The Mergers are complex and take several years to integrate systems.
• Job Losses: Since there will be one merged entity, and it will not need as many employees as the separate banks had, many employees may lose their jobs.