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The lockdown period due to COVID 19 outbreak has witnessed the biggest ever consolidation exercise in the banking space in India. 

Reserve Bank of India has said, “ The merger of 10 state-run banks into four will come into force from April 1”.

In the merger, there is an anchor bank and amalgamation banks, where the latter gets merged with the former. The mergers are aimed at creating global sized banks in India. 

Here’s a look at it:

Anchor Bank	Amalgamating Bank	PSB Rank by Size
Punjab National Bank	Oriental Bank of Commerce and United Bank of India	2nd Largest
Canara Bank	Syndicate Bank	4th Largest
Union Bank of India	Andhra Bank and Corporation Bank	5th Largest
Indian Bank	Allahabad Bank	7th Largest

Source: Economic Times

As stated by the Government- “ This move of the merger will lead to the creation of stronger establishments that will be able to meet the challenge of a $5 trillion economy”. 

Here are a few key points about the mega-merger:

• Punjab National Bank has unveiled its new logo that will bear distinct signages of all three lenders, post the merger comes into effect.
• Punjab National Bank will become the second-largest lender of the country after taking over Oriental Bank of Commerce and United Bank of India.
• The merger of Canara Bank and Syndicate Bank will form the fourth largest PSB with an expected business of Rs 15.20 lakh. Post the merger it will now have 10,391 branches, 12,829 ATM’s and a combined strength of 91,685 employees.
• Union Bank will become the fifth-largest public sector bank in the country after the amalgamation of Andhra Bank and Corporation Bank with Rs 14.59 lakh crore business and 9,609 branches. The investments of Andhra Bank and Corporation Bank will come under Union Bank as a combined entity, following the announcement of a merger by RBI
• Allahabad Bank to become seventh-largest PSB, post the merger of Indian Bank with a business of Rs 8.08 lakh crore. There will be a combined strength of 9,000 workers with an expansion of 6,060 branches and a network of 2,870 ATMs. 
• This exercise will create seven large public entities with scale and national reach, with each amalgamated entity having business over Rs 8 lakh crore. 
• The customers, including depositors of merging banks, will be treated as customers of the banks in which these banks have been merged with effect from April 1, 2020.
• Following the amalgamation of Bank of Baroda, Vijaya Bank, and Dena Bank last year, the merger of these 10 banks will lead to the creation of stronger establishments.
• The bank merger plan is taken care of by the government by front-loading Rs 68,855 crore.
• In 2020, the number of PSBs will get consolidated from 27 banks to 12 banks. 
• The 12 new public sector banks will now be six merged banks and six independent banks. State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Union Bank of India, Indian Bank will be the six merged banks. Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sind Bank having strong regional forces will remain independent entities.
• 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.

The merger of Bank of Baroda with Vijaya Bank and Dena Bank last year was extremely successful, according to the Government. And the Government is expecting similar results with this amalgamation of the 10 PSBs. Bank of Baroda has posted strong financial results of before and after the merger, with operating profit up by 11.4% (Rs 1,487 crores), deposits increasing by 8.8%, capital ratio increasing by 171 basis points, and retail lending by 15.3%.

Source Business Today

This consolidation would lead to cost benefits with greater scale and synergy. This should enable PSBs to enhance their competitiveness and positively impact the Indian Banking System. The ability to support larger ticket size lending and have competitive operations by virtue of greater financial capacity, is what consolidation would provide. Additionally, PSBs would be in a position to gain a competitive advantage by leveraging analytics in a rapidly digitalising banking landscape. This will be possible by the adoption of technologies across the amalgamating bank, access to a wider talent pool, and a larger database.

So, let’s figure out how as a customer of one or more of the banks being merged, can have a few significant implications:

Bank Account Numbers, Customer Ids to change

Customers get a new account number and customer ID. Make sure to update your credentials of email address/physical address and mobile number with your bank to get notifications. Customers having two accounts will be allotted a single customer ID, where the merger will take place.

Submission of fresh account details for auto-credits/debits

Post allocation of new account numbers of IFSC codes, you will have to update these details with various third party entities. Those will include the income tax department for tax refunds, mutual funds to get the redemption amounts and the National Pension System (NPS) etc.

Post-merger customers will have to honour all electronic clearing service (ECS) mandates and post-dated cheques. If required issue fresh ECS mandates to insurance companies, banks for loans etc.

Local Branches and ATMs

Customer may get access to a wider network of ATMs and larger bank branch network. Keep a check on the new IFSC and MICR code applicable to your branch which will be required to quote it for funds transfer and other financial transactions. Customer will now also be able to choose from a broader suite of products and services. 

Deposit, lending rates to be decided by the merged entity

Post-merger of banks the loan rates may change as there may be a change in the composition of deposits and cost of funds. For example, Oriental Bank of Commerce and United Bank of India have been merged into Punjab National Bank (PNB). So, if PNB has a lower interest rate on loans, one can expect a decrease in spread for existing customers of UBI and OBC. 

Banks after Merger	Home Loan Rates at the next reset rate, if PNBs MCLR remains unchanged
Punjab National Bank(+ Oriental Bank of Commerce + United Bank of India)	8.50%
Canara Bank(+ Syndicate Bank)	8.70%
Union Bank of India(+ Andhra Bank+ Corporation Bank)	8.70%
Indian Bank (+ Allahabad Bank)	8.75%

Source: Economic Times

It is not clear now for those who have loans running with the amalgamating banks as the MCLR rates are different for different banks.

Credit/Debit Cards

To ensure no disruption in services the existing cards are likely to remain valid for the interim period. Later these may be exchanged for those of the merged entity at some stage. Customers will not be charged any fee for using their debit cards with their amalgamated banks.

Paperwork

Due to the merger in place paperwork will increase.

Fixed deposits and recurring deposit rates

For fixed deposits and recurring deposits, the current rate of interest will continue till maturity. The renewal of FDs will be done with the latest term deposit rates of the amalgamated bank.

Shareholders

With the announcement of mergers happening, the prices of the shares on the exchanges have already been impacted. All shareholders of public listed banks involved in the bank will be impacted. How much will be the impact will be known on the announcement of swap ratios.

Technology 

With the mergers happening, the technology has to be at the forefront to keep all transactions continuing seamlessly. Few issues have been notified about the problems arising out of tech-related systematic changes. The finance minister has promised to attend to those problems.

Conclusion

In the midst of the fight against the global Covid-19 crisis, going ahead with the merger of 10 public sector banks (PSBs) into four large entities is profound and will bring out significant changes in the future.