Mega merger impact: How things stack up post consolidation of public sector banks

The latest set of mergers will change the pecking order among the nationalised banks

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First announced in August 2019, the government’s ambitious plan to merge 10 state-owned banks into four came into effect from April 1, 2020. The move, aimed at strengthening the banking system and creating more large institutions with size and scale, has seen Oriental Bank of Commerce and United Bank of India merged into Punjab National Bank; Andhra Bank and Corporation Bank merged into Union Bank of India; Allahabad Bank merged with Indian Bank and Syndicate Bank amalgamated into Canara Bank.

This is the third such move to consolidate public sector banks. Earlier, the associate banks and Bharatiya Mahila Bank were merged into State Bank of India. Then Vijaya Bank and Dena Bank were merged into Bank of Baroda.

The latest set of mergers will change the pecking order among the country’s nationalised banks and give many of them a wider geographical reach and make balance sheets stronger.

For instance, PNB will become the second largest state-owned bank with over 11,000 branches, 13,000 plus ATMs and a business mix of over Rs 16 lakh crore. There will be over 1 lakh employees in the merged entity.

Canara Bank will now become India’s fourth largest public sector bank. Post amalgamation of Syndicate Bank, Canara Bank will have a network of 10,391 branches, 12,829 ATMs and a business size of over Rs 16 lakh crore. The staff strength will now go up to 91,685 employees.

Union Bank becomes the fifth largest nationalised bank, with over 9,600 branches and a business of Rs 14.59 lakh crore.

Indian Bank, with a combined branch network of 6,060 branches and 2,870 ATMs, and a business of Rs 8.08 lakh crore will be the seventh largest state-owned lender. Indian Bank was strong in south India and the merger of Allahabad Bank will give it wide access to north and east India, where the latter is stronger.

Merger of such huge scale is bound to have some impact on the network and employees. The government had already clarified that there won’t be any job losses. However, there will surely be overlapping roles, which will be reassigned, some of the employees may also be transferred to different departments or branches as the transition process takes shape. There may be some impact on new hiring too.

While banks say branches are unlikely to closed right away, there will be some overlap and therefore some restructuring will happen in due course. For instance, Indian Bank’s MD and CEO Padmaja Chunduru has said that 150-200 branches that had been identified would either be merged or their location shifted. 

“There shall be no immediate branch closures in any of the banks. In future, if there are some closely located branches of the three banks, they may be merged/shifted with prior notice to customers,” PNB said.

While the merger may have been effective from April 1, the integration of all the processes and technology can take months. Through this period, customers of the banks that are being merged into other banks could avail several services such as cash deposits and withdrawals and inter-bank fund transfers etc, either through their existing bank’s branches or through the new anchor bank’s branch soon.

Furthermore, the existing bank account numbers, Indian Financial System Code (IFSC), Magnetic Ink Character Recognition (MICR) Code etc. will also remain the same, and customers of the banks will also be able to use the same existing cheque books and debit cards for now. Eventually, though new cheque books and pass books as well as debit cards will be issued with the details of the new bank.

Internet banking portals and mobile applications of individual banks are also likely to operate just like earlier for now. So, the customers and deposit holders of the banks won’t have to worry much or go through any sort of fresh applications process in the near term.

Most of these banks were listed entities. So, as target banks will cease to exist, shareholders of these banks were allotted shares of the anchor bank. For every 1,000 shares of Syndicate Bank, 158 equity shares of Canara Bank were given. Similarly, an exchange ratio of 1,150 shares of PNB for every 1,000 shares of Oriental Bank of Commerce and 121 equity shares of PNB for 1,000 shares of United Bank was fixed.

Those holding 1,000 shares of Allahabad Bank were allotted 115 shares of Indian Bank. For every 1,000 equity shares of Andhra Bank, 325 shares of Union Bank were allotted and for every 1,000 shares of Corporation Bank, 330 Union Bank shares were given.

This mega merger of PSU banks came into effect at a time the country is in a 21-day lockdown to control the spread of COVID-19 outbreak and banks are functioning with limited manpower and shorter working hours than normal.

The All India Bank Officers Confederation said it had been insensitive of the government to go ahead with the merger in current situation.

“Implementation of the merger decision during this abnormal period will severely impair the normal activities of the public sector banks and impose needless and avertable burdens on the bank officers and employees,” said Soumya Datta, general secretary of AIBOC.

Training and integration of technology platforms following the merger cannot proceed smoothly till the time lockdown restrictions are in place, he said.

AIBOC has challenged the mega mergers in the Delhi High Court, but the matter hasn’t come up for hearing yet due to the lockdown.


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