The Cabinet approved the amalgamation of the 10 public sector banks (PSB) into 4 PSBs that was announced on August 30, 2019. The nod was given today and the merger would come into effect from April 1, 2020. The Cabinet's approval will lead to the merger of -
- Oriental Bank of Commerce and United Bank of India into Punjab National Bank;
- Andhra Bank and Corporation Bank into Union Bank of India;
- Syndicate Bank into Canara Bank; and
- Allahabad Bank into Indian Bank
According to the government, the merger of the 10 banks will lead to the creation of stronger establishments that will be able to meet the challenge of a $ 5 trillion economy. The number of branches of the banks will compound, giving existing customers more than 3,000 stations to do their banking from.
The investment in technology-enabled smart banking will lead to improvements such as paperless tab-banking, faster loan processing, banking from home, and customer-need driven credit offers.
"Businesses and industry will benefit through increased lending capacity, with the regulatory ceiling for lending individual borrowers increasing by over Rs 1,500 crores to Rs 3,000 crores," the government release said.
This merger would follow in the example of the amalgamation of Bank of Baroda, Vijaya Bank, and Dena Bank last year. As a result of this amalgamation, the number of PSBs will get consolidated from 27 banks in 2017 to 12 banks in 2020. The amalgamation of the two banks into Bank of Baroda was extremely successful, according to the government.
Bank of Baroda, after the merger, had posted strong financial results as compared to results before the merger with the operating profit up by 11.4% (Rs. 1,487 crore), deposits increasing by 8.8%, capital ratio increasing by 171 basis points, and retail lending growing by 15.3%.
The government expects that the amalgamation of the 10 PSBs will yield similar results as the Bank of Borda.
According to the government, the banks are ready for the transition and the process should be smooth. The banks will adopt approaches through which the salary and other benefits of the of the employees would be safeguarded.
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