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To create a set of strong public sector banks, the government today announced a mega merger plan that amalgamates 10 lenders into four combinations.
The announcement by Finance Minister Nirmala Sithraman, in second of her promised three-dose economic booster , came on a day GDP growth hit a six-year low.
Post today’s mega merger , India will have 12 public sector banks against 27 two years ago. Even as it announced the amalgamation, the government hastened to assure the over three lakh officers and employees of these banks that there would be no job loss.
In the first set of consolidation, Oriental Bank of Commerce and United Bank will be amalgamated with Punjab National Bank. This will form the second largest public sector bank in terms of business and branches.
In the second, Syndicate Bank will amalgamate with Canara Bank to form the fourth largest bank in terms of business and the third largest in terms of branch network.
Andhra Bank and Corporation Bank will join Union Bank of India and the new entity will be the fifth largest in terms of business and fourth largest in terms of branches.
Also read: Measures to achieve higher economic growth
Finally, Allahabad Bank will become a part of Indian Bank, forming the seventh largest combine in terms of business.
Terming this move as ‘Building NextGen Banks,’ Nirmala Sitharaman told a press conference that from this consolidation will emerge big banks with enhanced capacity, strong national presence and global reach.
Also, there will be operational efficiency gains that will reduce their cost of lending. This will enhance their risk appetite. The thrust will be on NextGen technologies for banking while customers will get wider offerings.
Finance Secretary Rajiv Kumar, who is also in-charge of the Department of Financial Services, said there had been no retrenchments in past consolidations, including that of the State Bank of India and its subsidiaries. He said the service conditions of employees had improved post-mergers. “The employees will only benefit,” he said.
He cited the benefit of scale and synergy for the mergers and said there would be no disruption in service.
Asked if there are more amalgamations/mergers ahead, Kumar said, “As of now, the roadmap is final and 12 is the final number.”
While he did not specify the date from when the scheme of amalgamation would become effective, Rajiv Kumar said the boards of the banks would take a decision on the scheme. Once they give their recommendation, the government will move the RBI for approvals. Since all the banks are listed on stock exchanges, approval from shareholders will also be sought. After all these processes are over, the record date will be decided.
In the case of the amalgamation of Bank of Baroda, Vijaya Bank and Dena Bank, it took almost six months for the new entity to come into existence. Their merger decision was announced in September 2018 and the combined entity came into being from April 1 this year. The government expects a similar timeline for its latest moves, too. However, staff integration could take some more time.
Governance reforms
To make the management accountable to the directors, the board committee of nationalised banks will assess the performance of General Managers and above, including Managing Directors. Also, the size of the board committees can be reduced or rationalised. There will be longer term for the directors.
To make control easier post-consolidation, the boards will be allowed to introduce the post of CGMs (Chief General Managers).
A Chief Risk Officer is to be appointed from the market at market-linked salaries to attract the best talent. To enable succession planning, the boards will decide on a system of Individual Development Plan for all senior executive positions. Another significant move is that only officers with at least two years of service left will be appointed to the post of General Manager and above.
The loan sanctioning authority of the board management committee will be doubled to give focussed attention to higher loan value proposals.
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