Among reports in the media expressing apprehensions over the feasibility of the merger of public sector banks by April 1, the Finance Minister took stock of the status directly in a meeting with the top executives of the banks involved. Though it is not known what exactly transpired in the meeting, it is said each of the banks made a presentation to the FM and other officials of the Finance Ministry on the progress made in the amalgamation process.
The ministry itself put out a tweet, from its official handle, which read: “Amalgamating PSBs made a presentation to Hon. FM Nirmala Sitharaman on their preparedness. Amalgamated PSBs to ensure no disruption to credit and enhanced customer experience".
The understanding is the FM told the chief executives of the banks that the amalgamation process should not affect the lending process, particularly to the MSME and other important sectors of the economy. The anchor banks have been specifically told to ensure this, it is learnt.
There were 27 public sector banks in India in 2017. This figure came down to 18 by 2019 and now post these mergers from April 1, there will only be 12 public sector banks. The government took this step in last August when Nirmala Sitharaman made an elaborate presentation in a media meet on the merger of several smaller banks with the larger ones.
Thus, Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank will be merged into one large bank which will become the second largest after State Bank of India (SBI).
The other amalgamations will see Canara Bank and Syndicate Bank being merged. Union Bank of India will merge with Andhra Bank and Corporation Bank and Indian Bank will merge with Allahabad Bank to make India’s seventh-largest PSB. Some mergers like Bank of Baroda absorbing Dena Bank and Vijaya Bank have already taken place.
The immediate challenge for the government is to restore confidence in the Indian banking and non-banking system in such a way that the credit flow into the industry and trade happens smoothly. Credit offtake has been a subject of concern. The announcement of the mergers has seen these banks directly involved reflecting much lower credit outflow in the past few months. This is one area the executives at these banks will have to look at more closely and act on.
The way things stand, the banks will merge on paper, where their stocks will become one and their balance sheets will be consolidated by April 1. However, the physical unification of the personnel and branches of the banks and the IT-related activities may take more time.