Public Sector Banks Merger In India In 2020

The banking sector in India went through a devastating impact when people in business defaulted on their loans and fled. Thus, the banking sector in India came under a deep crisis. Hence, the government of India decided to come up with a solution by merging 10 public sector banks into 4 big lenders. The idea behind the merger of 10 public sector banks with 4 big lenders was to increase the money lending capability of the 4 big players in the public banking sector. Moreover, the idea was also to strengthen the financial capacity of the banks. This article will explain the details behind the merger of banks. While explaining the topic, it will brief the idea about the reasons behind the merger of public sector banks and their challenges. Moreover, the article also explains the consequences of the merger between Allahabad Bank and Indian Bank.

Positives of a Merger between Banks

In 2019 the finance minister of India declared that ten state-owned banks would get merged with four bigger central banks. The decision to merge the ten banks was put forward to culminate the effects of bad loans in the banking sector. Merging the banks would have cleared the balance sheets and would invite global lenders. The merging of banks would have been crucial in making India a $5 Trillion Economy by 2024.

According to the finance minister, the merger of the banks will improve their technology, customer reach, competitiveness, and services.

Reasons for Bank Mergers are as follows:

• One of the primary reasons for merging a bank is its history of bad loans. If a bank has several defaulters, there are high chances that it may get incorporated with big central banks. Thus, for small banks like the Syndicate Bank, it is necessary to provide loans after proper background verification,
• Most of the state-owned smaller banks in India, like Andhra Bank, use old technologies to maintain their data. Thus, a merger is a good way for such banks to enhance their operational effectiveness, supervision, and accountability.
• When a bank merger happens, the chances of creating a financially stronger bank increase. When a merger happens, unnecessary overlaps in operations are removed, facilitating the growth of the country’s economy. Moreover, since the number of operators in the banking sector will reduce, cost reduction will also occur in the banking sector.
• The merger of banks leads to the development of futuristic banks because the money the banks have for spending on infrastructure development is more. Moreover, modern banks also increase global outreach. Thus, their customer base grows.

Challenges faced by a bank during a merger

Some key challenges faced by banks during a merger are as follows: 

• Variation in the work culture.
• Change in the higher management.
• Rationalisation of the bank branches.
• Creating newer synergies with the technology of the other bank.
• Creating a bank that is reputed worldwide.

Consequences of a merger between the Allahabad Bank and the Indian Bank

When the merger between the Allahabad Bank and the Indian Bank was announced, the chief operating officer of the Indian Bank announced that the critical focus of the Indian Bank stayed the same, that is, to provide the highest customer service.

Some consequences of the merger between the Allahabad Bank and the Indian Bank are as follows.

• The merger of banks was carried out under “Project Sangam”. During the merging process, the technological integration went smoothly. However, establishing synergy between human resource departments was tricky. Noticeable steps were taken to make the process hassle-free.
• The merger of Allahabad Bank elapsed many times because it had nearly 3000 branches all over India. Hence, the current union will take time to merge the two banks cohesively.
• Due to the merger between banks, the stressed sectors such as tourism, travel, and hospitality will gain hugely. They will be able to take more loans and survive the consequences generated by the COVID-19 pandemic.
• The CEO of the Indian Bank expects that the merger with Allahabad Bank will help increase its growth to double digits. Primarily due to the higher capability of lending loans. The Indian Bank, for now, is concentrating on industries that present low to moderate risks so that the number of defaulters stays low. However, the bank still believes that its primary business will come from housing and vehicle loans.
• With the new merger, the Indian Bank plans to target giving loans to salaried people and pensioners. Further, it also plans to make the education loan more attractive for students who wish to pursue studies. Moreover, the merger will help the Indian Bank create a robust digital banking interface for their customers, making banking very easy for them.

Conclusion

The merger of 10 banks with the 4 big moneylender has opened new opportunities. According to the finance ministry, the merger between bans will make the Indian industry more attractive for investment. Further, technology will be enhanced in the banking sector, essential for maintaining transparency and data management. The amalgamation of the Allahabad bank and the Indian Bank will be highly fruitful for their customers mainly because Indian banks will be able to cater to customers with the latest technologies making banking hassle-free. Moreover, the merger will also help industries from stressed sectors to grow and counter the consequences put forward by the pandemic.