With a lot happening in the economy, the government has come up with a major banking sector reform with a view to give the slowing economy a boost with more efficient banks. According to finance minister Nirmala Sitharaman, merger of ten banks into four will lead to the expansion of credit creation ability of the banks circulating more money into the economy. Also, they will be well equipped for lending big amounts by themselves without depending upon other institutions. The government is trying to infuse about 70,000 crores into public sector banks. “More capital is being given to banks and they will continue to do more of what they were doing earlier,” Sitharaman said.
The merging of banks can have its own advantages and disadvantages. A bank merger ensures the expansion of the capacity in terms of lending and investments of the bank as well as its geographic footfall. This gives them a chance to scale up and reach their goals quicker. The merger will not affect the working of the banks as it has been done keeping in mind that the banks coming together use similar technological platforms.
Let’s have a glance at the four set of mergers.
- Oriental Bank of Commerce and United Bank merger will merge into Punjab National Bank to create a bank with 17.95 lakh crore business and 11,437 branches becoming the second largest bank in India after State bank of India.
- The merger of Syndicate Bank with Canara Bank will create the fourth largest public sector bank with 15.20 lakh crore business and a branch network of 10,324.
- Andhra Bank and Corporation Bank’s merger with Union Bank of India will create India’s fifth largest public sector bank with 14.59 lakh crore business and 9,609 branches.
- “The merger of Allahabad Bank with Indian Bank will create the seventh largest public sector bank with 8.08 lakh crore business with strong branch networks in the south, north and east of the country,” Sitharaman said.
Last year, the government had merged Dena Bank and Vijaya Bank with Bank of Baroda, creating the third-largest bank by loans in the country.
There was tension among the employees regarding lay off in the industry but FM cleared all their doubts by promising that no employee will lose their job. And as far as customers are concerned there won’t be many changes for them too. The lending rates will remain the same. The interest rates on Fixed and Recurring deposits will remain unaffected as well. The only changes that can take place are changes in customers’ ids or new account numbers may be allotted. Many branches will be closed or relocated, therefore customers may have to reach out to some different branch.
The big question here is whether these bank reforms or minor policy changes will be able to revive the economy or not? All that was to be done is done, now time will be the only measure to see what comes next.