In order to prepare the Indian economy to reach $5 trillion GDP level, the Union government has announced the third round of bank consolidation in which 10 public sector banks (PSB) are being merged to four. Punjab National Bank will merge with Oriental Bank of Commerce and United Bank to create the second largest bank in terms of business. Canara Bank and Syndicate Bank will merge to create fourth largest state-owned bank. Union Bank of India will merge with Andhra Bank and Corporation Bank to create the fifth largest PSB. Indian Bank will be merged with Allahabad Bank to create the seventh largest PSB. The government is trying to create big banks with greater financial strength to provide funding to the needs of a growing India. However, what could be the impact of this merger on the customers of these banks is a bigger question? Here is what you can expect.
How the process works
Merger of banks is a time consuming process which may go on for several months. However, it is made sure during the process that there is minimum disruption or inconvenience for customers. The government has been careful in selecting and merging only those banks that operate on the same software platform which will make the transition smooth. Most backend processes are integrated with the help of technology without disturbing customers. Among merging banks, the largest one often plays the role of anchor bank and the merged bank takes the identity of the largest bank.
Hiccups during transition
During the merger process, consumers will have to deal with minor difficulties. Whenever backend technological integration takes place it often needs downtime when customers cannot carry out transactions. These downtimes are usually planned late night so that a minimum number of consumers get affected. Often customers of one bank are used to process and culture of the bank and may find some difficulty as the merged entity may do things differently.
Greater reach and accessibility for customers
A merger enhances geographical reach of the all merging entities. As a consumer you will benefit as you can access your bank branch at more places which were earlier not on the bank network. Similarly, number of ATMs which customer can access also increases. People who are in professions which require frequent travel will find it helpful that their bank branch and ATM are available at new places.
There are many localities in which multiple branches of these merging banks operate on individual basis. After merger, number of such branches will be reduced allowing the merged entity to spread into new geography by utilising resources released by removing duplication. However, some customers will find the most conveniently accessible and closest branch being shut.
What will happen to your debit card and chequebook?
Customers of smaller banks will automatically receive new debit cards and cheque books before the effective date of merger. Therefore if you are customer of any merging bank you should make sure that you have your correspondence address and contact details updated so that you receive any communication from the bank.
How will eBanking work?
Better product and services
All merging banks bring their best practices and product strength. As a result, the merged entity is able to learn and offer better quality products and services to consumers. It has the option to pick the least costly and better process among merging banks to offer to customers.
Competitive lending rate
Though large PSBs which enjoy bigger CASA (Current Account and Saving Account) Deposit Ratio are the cheapest source of funds for the bank and hence they are able to offer loans to consumer at quite competitive rates. Many smaller PSBs do not have higher CASA ratio hence are not able to offer competitive low rate loan to their customers. After merger the customer of even these banks will be able to get loans at very competitive rate.