Bank Merger Pros and Cons- Bank Merger List

Bank Merger in India

Bank Mergers in India

From April 1, 2020, 10 public sector banks have been consolidated into four big banks. In a bank merger scenario, there are some amalgamation banks and an anchor bank, and the former gets merged with the latter. The bank merger list 2020 consists of 10 banks that include OBC and United Bank of India being merged into PNB, Syndicate Bank being merged into Canara Bank, Andhra Bank and Corporation Bank into Union Bank of India, and Indian Bank into Allahabad Bank. This is the biggest amalgamation exercise in the banking sector of India. However, a bank merger is not a new thing in our country. It has been around ever since the early 90s. This is usually done to bail out weaker banking institutions while giving protection to customer interests. The reason behind bank mergers is that the non-performing assets of some banks grow and they become loss-making entities and the Government can’t always bear that. A merger is surely a pretty big step and several factors get affected by the same.

What is Bank Merger ?

A Bank merger is a situation where two banks combine their liabilities and assets to become one bank. Nearly every middle-market bank in India is planning to merge with another bank to expand its reach and gain new customers’ attention. Merging helps a financial institution to grow faster and achieve huge credibility in the market. A merger gives a financial institution more capital to work with and upscale their geographic reach in which they operate. If a small bank wants to achieve financial goals quickly, it is a great option for it.

One of the significant benefits of bank mergers is that it reduces the weakness and gets the market’s competitive edge. In the merger process, the merging banks share information related to technology, cash, resources, data, etc. With each other.

There are so many examples of bank merging, like, Oriental Bank of India and United Bank of India are merged with Punjab National Bank. After this merging process, PNB has become the second-largest bank of India after SBI.

With this example, you have completely understood the power of bank mergers. If you want to read about this in detail, then keep reading.

What is Public Sector Bank Merger?

With effects from 1 April 2020, ten public sector banks are being merged and become 4 banks. This is one of the biggest mergers in the banking sector. After the merging effect, the merging banks’ customers will now be treated as the bank customers in which they have been merged. Out of 12 public sector banks, six banks are working independently. Their names are Indian Overseas Bank, UCO Bank, Central Bank of India, Bank of Maharashtra, and Bank of India.

Basically, the merging’s sole purpose is to bail out the weaker banks and protect the customers’ interest. Merging also happens due to growing ‘Non-Performing Assets’ that burden the government’s shoulders.

Everybody is looking for answers in various finance blogs. Without further ado, let’s get into the pros and cons of mergers of banks in India.

Pros of Bank Mergers

  • The bank merger will pave the way for more capital generation opportunities from the market and also internally, for the anchor bank.
  • The Government will receive more dividends that become part of its non-tax revenues.
  • The competition in the financial market will decrease since there will be a lesser number of individual banks existing. This in turn will give rise to concentrated payment and greater settlement flows.
  • Bank merger will reduce the operational risks since the size of the overall bank will grow, so the distance between the management and operational employees increases.
  • The credit portfolio of the banks and the non-performing assets (NPAs) will be dealt with in a better way. The amalgamation will not allow the expenditure of more resources in a particular area and thus, strengthening the banks with stocks.
  • The bank amalgamation will lead to greater synergy and cost benefits. This would have a positive effect on the Indian Banking System.
  • PSBs will gain a competitive advantage by investing in and adopting technologies all across the banks being amalgamated. Digitalization and technological help is necessary to make such a huge change possible.
  • The customers of these banks might get access to a larger network of bank branches and ATMs.

Cons of Bank Mergers

  • After the bank merger in India, the operations of the stronger bank will be hindered due to the unhealthy impact of the weaker banks. For example, after the bank merger was announced, the shares of Vijaya Bank and Bank of Baroda fell significantly but Dena Bank incurred steep growth.
  • Human resources and cultural issues might also hinder the success of bank mergers.
  • The decision of the Government that is the dominant shareholder will affect the minority shareholders who will now have a minimum say in matters.
  • The bank merger process that involves healthy banks taking over weaker banks is not much likely to solve the current bad loan problems.
  • The management will have to face critical challenges related to the rationalization of branches, staff integration, synchronizing accounting, etc.
  • The employees are fearful of losing their jobs and their promotion possibilities might be affected as well.
  • The pensions could be affected due to separate employee benefit structures.
  • The account holders will have to update the newly allotted IFSC codes and account numbers with different third party entities like the Income Tax returns, mutual funds, etc. This is also needed to be done for auto credit of salaries, auto-debit of bills/ charges, auto credit of dividends, etc.
  • If there are a lot of branches in the same area after the merger, then some branches might be closed.
  • At some stage, the credit/debit cards will have to be exchanged for new ones bearing the name and logo of the new anchor banking institution.
  • The post-dated checkbooks will stand canceled and new checkbooks will be allotted.
  • The paperwork will increase to keep the financial track of FDs investment and other details that will be shifted under the merged bank’s authority.

Benefits of Bank Mergers

The following are the benefits of bank mergers:-

  • Efficiency

Bank mergers uplift the banks more efficiently, not just in terms of efficiency but also in terms of business operations. Every bank has its unique infrastructure, risk assessment, technology, employees and working principles. Now, two banks are converted into one bank; now they are more able to work more efficiently.

  • Business Gaps Filled

One of the significant benefits of merging is that it fills the business gaps due to lack of funds, technology, and poor infrastructure. Acquiring a small bank that services is good, but it needs funds that survive is sometimes easier than creating a bank from scratch. When a larger bank merges with a smaller bank, the business gaps will get filled effortlessly.

  • Talent and Team Upgrade

Every bank benefits from a merger because of an expanding talent team. When a merged bank gets experienced managers and employees, their productivity and customers’ satisfaction rates will reach new heights. Being merged by the other bank brings a sense of stability that a weaker bank needed for survival.

  • Scale

A bank merger helps a merged bank scale up quickly and cater to the demands of the new customers easily. If a small bank wants to achieve growth goals faster, merging is an ideal option for it.

Bank Merger List in India 2021

The following are the list of four banks that have been merged recently.

  • PNB + OBC + UBI

Oriental Bank of Commerce and United Bank of India are merged with Punjab National Bank. After merging, the PNB will be the second-largest public sector bank. This bank’s total branches would be 11,437 and the total capital of PNB bank would be Rs. 17.95 lakh crore.

  • Syndicate Bank + Canara Bank

Syndicate bank is acquired by Canara bank. After merging, Canara would be the fourth-largest public sector bank of India. The total capital of Canara bank would be Rs. 15.20 lakh crore. And the total branches of this bank would be 10,342

  • Andhra Bank + Corporation Bank + Union Bank of India

The Union Bank of India acquires Andhra Bank and Corporation Bank. So after this merger now the Union Bank of India will be the Fifth largest bank of India. Its total branches would be 9,069, and total business would be Rs. 17.95 lakh.

  • Allahabad Bank + Indian Bank

Indian bank is merged with Allahabad bank and would be the seventh-largest public sector of India. After the merger, the total business of Allahabad bank would be Rs. 8.08 crore, and the number of branches would be 6,104

Advantages & Disadvantages of Bank Merger

Merger is a big step, and sectors beyond the financial world are affected by such a move. Everything comes with advantages and disadvantages; let’s review both sides of this concept.

Advantages

  • When another bank acquires a bank, it’s a balance sheet and lending will get boosted.
  • After merging, these banks would be able to compete with global banks and lend huge money to the people.
  • The merger would help is better management of banking capital.

Disadvantages

  • Many banks have a regional audience, and a merger can destroy the idea of decentralization.
  • Mergers make big banks under pressure due to weaker banks.
  • Coping with the new staff is the biggest challenge of the merger.

Final Say..

The COVID-19 outbreak induced lockdown is witnessing the biggest bank consolidation exercise in India. Let’s wait and watch in the upcoming days how the bank mergers in India progress and how the same affects the banking system in India.

New customers, empowering of business, market reach, increasing capital, and stability are some of the bank mergers’ common factors. Overall this concept is proved to be good for the overall economy.

About Sneha Kapoor 1 Article
Sneha Kapoor is the managing editor for Theglobalinformation and a personal finance counsellor. She loves to geek out on financial data, Market trends and translates it into actionable insights everyone can understand.

Be the first to comment

Leave a Reply

Your email address will not be published.


*