1st April 2020 will be marked as the day of one of the biggest changes in the financial sector of India as 10 Public Sector Banks (PSBs) will be merged into 4. However, due to Coronavirus lockdown, some changes will not come into effect to minimize the disruption.
Crux of the Matter
Indian financial sector has faced several issues with Public Sector Banks (PSBs). The Central Government has pumped around ₹3.8 lakh crores in the state-owned banks from FY 11 to FY 20. In August 2019, the Government had declared the merger of the banks stating that it will strengthen the financial sector. It is hoping that the merger will allow them to function at par with the global scale and quality and will help to reduce the burden of bad debts.
Today’s announcements on bank mergers is a cohesive and a clear recognition that bigger banks have that much more able to absorb shocks, reap economies of scale as well as the capacity to raise resources without depending unduly on the exchequer. Rajnish Kumar, SBI Chairman
After the merger, the number of PSBs will reduce to 12 from 27 in 2017. According to the government, this is a big step taken to achieve the target of making India a $5 trillion economy by 2025. Following are the 10 mergers:
Punjab National Bank will become 2nd largest public lending bank after Oriental Bank of Commerce (OBC) and United Bank of India merge with it.
Syndicate Bank and Canara Bank will be merged into one Bank.
Union Bank of India, Andhra Bank, and Corporation Bank will be merged into one Bank.
Indian Bank and Allahabad Bank will be combined into one.
The bank accounts of customers will be transferred to the respective newly merged banks from April 1. But due to the 21-day lockdown, four leading banks i.e. PNB, Union Bank, Canara Bank, and Indian Bank have decided to postpone the implementation of new rules and regulations in the banking systems and will continue to follow old systems.
Last year, the trade union of PSBs had protested the government’s proposal of the merger of banks. It was concerned that the merger of banks will impact jobs and will cause problems in operations at some branches. But the Government assured that it will not affect any jobs.
Curiopedia
Public Sector Banks (PSBs) are a major type of bank in India, where a majority stake (i.e. more than 50%) is held by a government. The Central Government entered the banking business with the nationalization of the Imperial Bank of India in 1955. A 60% stake was taken by the Reserve Bank of India and the new bank was named as the State Bank of India. The seven other state banks became the subsidiaries of the new bank in 1959 when the State Bank of India (Subsidiary Banks) Act, 1959 was passed under the Nehru government. The next major government intervention in banking took place on 19 July 1969 when the Indira Gandhi government nationalized an additional 14 major banks. With this move, with 84% of the total branches coming under government control. More Info
Curated Coverage
Business Standard – Merger of 10 PSU banks into 4 effective from today; 6 banks cease to exist
Economic Times – Big bank mergers: Government turns ten PSBs into four
Livemint – Merger of 10 public sector banks to come into effect from today: 10 points
NDTV – 4 State-Run Banks In Place Of 10 From Today As Mega Merger Takes Effect
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