AMALGAMATION OF PUBLIC SECTOR BANKS IN INDIA: BOON OR BANE?

Ten Public Sector Undertaking (PSU) banks amalgamated into four banks with effect from 1st April 2020. In the biggest consolidation exercise in the banking space, the number of public sector banks in India has come down to 12 from 18. There were as many as 27 Public Sector banks in 2017. In the past, various other bank mergers have taken place.

- Amit Roy

About the author

Amit Roy Senior Manager & Faculty Union Bank of India Staff Training Centre, Kolkata

Introduction

For instance, in 2017, the country's largest public lender the State Bank of India took over five of its associates and Bharatiya Mahila Bank. These were State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad effective April 2017. Last year, Vijaya Bank and Dena Bank were amalgamated with Bank of Baroda.

The exercise assumes significance as it took place at a time when the entire country was under the grip of COVID-19 outbreak. It triggered 21-day lockdown to contain the spread of the deadly virus. Experts said merger at this point of time will not be very smooth and seamless. However, heads of the anchor banks were exuding confidence. The four anchor banks - PNB, Canara Bank, Union Bank and Indian Bank - postponed some part of the implementation and processes due to the lockdown. After this consolidation, there are seven large public sector banks (PSBs), and five smaller ones.

History of Mergers in Indian Banking

Mergers of banks began in India in the 1960s in order to bail out the weaker banks and protect the customer interests. In 1969 the government nationalized 14 private banks. As many as 46 mergers took place mostly of private sector banks in order to revive the poorly performing banks which proved to be quite a successful move for the underperforming banks.

The period from 1969-1991: The period was called postnationalization period. It saw six private banks being nationalized in 1980. In this period 13 mergers took place mostly between public and private sector banks.