FM Nirmala Sitharaman aims at economic growth with series of bank mergers

Finance Minister Nirmala Sitharaman has announced a series of mergers involving 10 public-sector banks on Friday to create global-sized banks with stronger balance sheets and more lending power. In a press conference on Friday, the Finance Minister announced four mergers to reduce the number of state-owned banks to 12.

"Twelve solidly present, well-consolidated, energised, adequately capital endowed banks will now operate. We're trying to build the NextGen banks," Finance Minister Nirmala Sitharaman said during the news conference.

Part of the biggest consolidation exercise in the Indian banking industry, the 10 banks to be amalgamated constitute 82 per cent of PSB business and 56 per cent of commercial bank business in India. In the series of mergers, Punjab National Bank, Oriental Bank of Commerce and United Bank of India would be amalgamated into the second-largest PSB by size with a business size of Rs 17.94 lakh crore.

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The second merger would be between Canara Bank and Syndicate Bank. The resultant entity would be the fourth largest PSB with a business size of Rs 15.20 lakh crore. FM Sitharaman announced that Union Bank of India, Andhra Bank and Corporation Bank would be amalgamated to form the fifth-largest state-owned bank and a combined business of Rs 14.59 lakh crore.

In the fourth merger, Indian Bank and Allahabad Bank would be brought together. The merged entity would be seventh-largest public sector bank with a business of Rs 8.08 lakh crore. Notably, Punjab National Bank, Canara Bank, Union Bank of India and Indian Bank have been designated the anchor banks in their respective amalgamation.

Meanwhile, Bank of India and Central Bank of India would continue to maintain their national presence, said FM Sitharaman. On the other hand, Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sind Bank would keep their regional focus, she added.

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"The merger proposals would now be taken to the boards of the banks involved in the amalgamation scheme for approvals. After receiving the bank boards' nod, the prospect would be discussed with the RBI in two phases," Finance Secretary Rajeev Kumar said during the press conference.

Kumar also assured that there would no retrenchment during or after the merger process. "We will ensure than bank employees benefit from the merger, and not the other way round," he added.

The government would also provide funds to these 10 banks. Punjab National Bank would get the biggest share worth Rs 16,000 crore, followed by Union Bank, which will get Rs 11,700 crore

This is the first bank consolidation measure since the Modi government's return to power in May earlier this year. During its last tenure, the NDA-led regime had put into motion merger of State Bank of India with its five associate banks and Bharatiya Mahila Bank, followed by the merger of Bank of Baroda, Dena Bank and Vijaya Bank.

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