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10 public sector banks to be merged (Relevant for GS Prelims & Mains Paper III; Economics)

Source: The Hindu

Finance Minister Nirmala Sitharaman announced merger of 10 public sector banks into four entities. This would take the number of banks in the country from 27 in 2017 to 12.

Rationale behind merger
These bank mergers, and the ones already carried out, will lead to the creation of big banks with an enhanced capacity to give credit, she said. These big banks, she said, would also be able to compete globally and increase their operational efficiency by reducing their cost of lending. The merger also has the potential to lead to large cost reductions due to network overlaps.

Details of merger

  1. The largest of the mergers announced is that of Punjab National Bank with Oriental Bank of Commerce and United Bank. The amalgamated entity — to be called Punjab National Bank — will become the second-largest public sector bank in India, after the State Bank of India. It will also become the second-largest bank in India in terms of its branch network, with a combined total of 11,437 branches.
  2. The second merger announced was that of Canara Bank and Syndicate Bank, which would render the merged entity the fourth-largest public sector bank.
  3. The third merger is of Union Bank of India with Andhra Bank and Corporation Bank.
  4. The fourth merger announced is of Indian Bank and Allahabad Bank.

Following all these mergers, the country will have a total of 12 public sector banks, half of which—Punjab National Bank, Canara Bank, Union Bank of India, Indian Bank, State Bank of India, and Bank of Baroda—will be able to compete at a global level.

The government did not give the date by which these mergers are to be completed, as that decision will be taken following further consolidation with the relevant banks.

Previous merger
Previously, the government has already merged State Bank of India with its affiliate banks, and Bank of Baroda with Vijaya Bank and Dena Bank.

Other reforms
Apart from the mergers, Ms Sitharaman also announced a number of smaller reforms to the boards of the banks that are aimed at improving their efficiency and accountability.

In order to make the management accountable to the boards of the banks, a board committee would be made in charge of appraising the performance of officers of the rank of general managers and above, including the managing director. The banks have also been allowed to recruit chief risk officers from the market, at market-linked compensation to attract the best available talent.

Other reform measures were aimed at increasing the engagement of non-official directors, allowing bank boards to reduce or rationalise the number of committees, and increasing the effectiveness of the directors on the Management Committees of Boards by increasing the length of their terms.



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