Merger of 10 banks into 4 to come into effect from Apr 1, says Sitharaman

Integration of balance sheets to be effective from April 1; bank boards to meet soon to finalise the share swap ratio

The government on Wednesday approved a scheme for the amalgamation of 10 state-owned banks into four, putting to rest any doubts about a possible delay in the process. 

Effective from April 1, 2020, the balance sheets as well as stocks of these banks will be integrated, according to the scheme of amalgamation approved by the Union Cabinet.

Punjab National Bank (PNB), Oriental Bank of Commerce, and United Bank of India will combine to form the nation’s second-largest lender. Canara Bank will take over Syndicate Bank; Union Bank of India is planned to be amalgamated with Andhra Bank and Corporation Bank; and Indian Bank will subsume Allahabad Bank.

“Businesses and industry will benefit through an increased lending capacity, with the regulatory ceiling for lending to individual borrowers increasing by over Rs 1,500 crore to Rs 3,000 crore,” a senior finance ministry official said, adding that the banks would be able to support specialised loan products, such as supply chain financing and cash management services.

The banks will swing into action to take the process forward. The first step will be to approve the swap ratio for stocks, with anchor banks expected to hold board meetings in the coming days. PNB is scheduled to hold its board meeting on Thursday.

The banks will set up an independent committee to address the grievances of minority shareholders.

However, the timeline for inviting comments from shareholders will be shorter than what was followed during the merger of Dena Bank and Vijaya Bank into Bank of Baroda, which came into effect on April 1, 2019. Finance Minister Nirmala Sitharaman said the government weighed the benefits arising out of the Bank of Baroda amalgamation before taking a call on the merger of 10 public sector banks (PSBs).

“We looked at the outcome (of the BoB amalgamation) within a short span, with an intention to understand if there are any lessons we need to learn from it and the impact on the performance. The amalgamations are being done so that customers reap benefits of larger banks. There will be more fund for credit and so on,” Sitharaman said.

After the process is complete, India will have 12 PSBs instead of 27 back in 2017.