Bank Merger

Modern banking originated in India in the second half of the 18th century. Among the first banks is the Bank of Hindustan, which was formed in 1770 and liquidated in 1829–32, and the General Bank of India, which was founded in 1786 but collapsed in 1791. The State Bank of India is India's largest and oldest bank that is still operational (SBI). In mid-June 1806 it was founded and began operations as the Bank of Calcutta. It was called the Bank of Bengal in 1809. The other two were the Bank of Bombay in 1840 and the Bank of Madras in 1843, all of which were created by a presidential government. The three banks amalgamated in 1921 to establish the Imperial Bank of India, which became the State Bank of India in 1955 after India's independence.

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The bank merger is also called the amalgamation of banks. The presidential banks, as well as their predecessors, operated as quasi-central banks for many years until the Reserve Bank of India was formed in 1935 under the Reserve Bank of India Act, 1934. The Indian banking industry is divided into two types: scheduled and non-scheduled banks. The scheduled banks are those included in the Reserve Bank of India Act, 1934's 2nd Schedule. Nationalised banks, State Bank of India and its subsidiaries, Regional Rural Banks (RRBs), foreign banks, and other Indian private sector banks are among the scheduled banks. On April 1, 2017, the State Bank of India (SBI) combined its associate banks to form India's largest bank.

What is Merger?

A merger is a process through which two or more corporations plan to merge to become a single organisation, sometimes with a new name, rather than remaining independently owned and managed. The integration aids in the reduction of faults and the development of competitive strategic advantage. During a merger, the merging companies share data about debt, finances, technology, and real estate, among other things.

Background of Banks Merger

The Finance Minister of India, Nirmala Sitharaman, announced the government's intention to consolidate 10 public sector banks into four big banks on Friday, August 30, 2019, to have financially robust public sector banks in India. There would be 12 public sector banks in India after the mergers, including the State Bank of India and Bank of Baroda. The merger is likely to result in fewer, larger global banks, which will help to stimulate economic growth. The Finance Minister confirmed the merger's completion date as April 1, 2020, on March 4, 2020. According to her, the consolidation of ten public sector banks (PSB) into four is on track, with the merger taking effect on April 1, 2020. The merger has been approved by the Union Cabinet. It is only the desire for development that drives an entrepreneur, as well as any other professional or organisation. This strong drive for expansion in terms of client base, financial sheet, and profit has pushed mergers and acquisitions to go forward and forwards in synergy. The Indian banking sector was not spared to the wave of mergers and acquisitions (M&A). Banks were first combined to rescue non-performing or inefficient banks, but as time passed, the system developed as well. Business growth, profitability, and organisational reorganisation have all been factors in recent mergers and acquisitions.

History of Bank Merger in India

In India, an amalgamation of banks began in the 1960s as a way to bail out weaker banks while also safeguarding the interests of consumers. Since 1990, there has been a drive to build an Indian bank that can compete with global giants in the post-liberalization age. In February 2017, the government authorised the merger of five affiliate banks with SBI, putting it on track to become one of the world's largest banks. In March, the Cabinet also authorised the merger of BMB. 

List of Recent Bank Mergers in India

The government of India merged 10 public sector (PSU) banks into four banks in 2021 to reorganise and rebuild the country's banking landscape. A merger is an agreement between two or more companies to pool their assets and liabilities and form a single company. Public Sector Banks (PSBs) are combined with 'anchor' banks in a Public Sector Banks (PSBs) merger. The Bank of Baroda and the State Bank of India are two of India's 12 public sector banks.

Position to Know all Four Mergers Separately

1. Merger Number 1: PNB + UBI + OBC

The Punjab National Bank combines the Oriental Bank of Commerce (OBC) with the United Bank of India (UBI) (PNB). As a result of this merger, the Punjab National Bank (PNB) will be India's second-largest public sector bank in terms of branch network, after the State Bank of India. There will be 11,437 branches, and the PNB's total business would be Rs. 17.95 lakh crore.

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2. Merger Number 2: Syndicate Bank + Canara Bank

Canara Bank and Syndicate Bank are combined. Canara Bank would become India's fourth-largest public sector bank following this merger. With a branch strength of 10,342, Canara's entire business will be worth 15.20 lac crore.

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3. Merger Number 3: Andhra Bank + Union Bank of India + Corporation Bank

Union Bank of India combines with Andhra Bank and Corporation Bank. Union Bank of India (UBI) will become the fifth-largest public sector bank in India as a result of this merger. This combination has the potential to grow the business of the post-merger bank by 2-4.5 times. Union Bank of India's entire business will be Rs. 14.59 lakh crore after the amalgamation, with a total of 9,609 branches.

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4. Merger Number 4: Indian Bank + Allahabad Bank

The Indian bank would be combined with Allahabad Bank in the fourth merger. Allahabad Bank would become India's seventh-largest public sector bank following the merger. Allahabad bank's overall business will be Rs. 8.08 lac crore after the merger, and the bank would have 6,104 branches.

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Banking Merger in India Benefits

• A larger bank is capable of competing on a worldwide scale.

• The merger will reduce the price of running a bank.

• NPA and risk management will result in an improvement of the merger.

• Professional standards will be improved as a result of the merger.

• High-Lending-Requirement decisions can be made quickly.

• It becomes simpler for the bank to maintain and enhance its identity as a larger bank. The benefits of a merger are vast, with the most important being the development of a whole new client base, corporate empowerment, greater market share, and the potential to improve technology. Bank merger in India: is it good for the Indian economy? As a result, it shows to be helpful to the overall economy.

• Due to mergers and acquisitions, total risk is reduced, which is always beneficial from a company standpoint.

• Increases profitability and helps to raise the standard of living, both of which are critical for a developing economy like India.

• Underperforming banks' chances of survival improve, ensuring that consumer trust is preserved, which is critical for the economy. The smaller bank merges with the stronger one, gaining access to large-scale operations.

• Indian banks will acquire better recognition and a higher grade in the global market.

• The pressure on the central government to recapitalize public sector banks regularly will be significantly reduced with a greater capital base and more liquidity.

• Multiple CMD, ED, GM, and Zonal Manager positions will be eliminated, resulting in significant financial savings.

Did you Know?

Saving and current account-related questions

1. What will be the impact on bank accounts after the bank merger?

Savings accounts, current accounts, and other types of accounts will all be affected by the bank merger. Once the merger is complete, these clients will need to visit their bank and exchange their old passbook for the new one. The government has instructed all of the banks participating in the merger to guarantee that financial services are not disrupted during the process.

2. Will my account numbers change after the amalgamation?

If the merging banks' account numbers have the same digits, the account number will not change. However, if the account numbers have a different number of digits, they will change.

3. Will the bank's IFSC code also change after the merger?

The IFSC (Indian Financial System Code) numbers of the merging banks' various branches would not change immediately, but they will change when the merger is completed.

4. What will happen to old (ATM) debit and credit cards?

The debit and credit cards issued to customers from the various banks engaged in the merger will not be affected by this procedure and will continue to work normally. Customers can get new debit and credit cards with the new name from integrated banks.

5. What will be the impact on RD and FD?

The impact of bank consolidation on the interest rates given on various deposit schemes will also be noticed. Pre-merger customers' FD-RD interest rates will not be changed, but new customers' interest rates will be decided by the banks after the merger.