Mergers of Public sector banks were a big step towards restructuring the banking system in India and simultaneously making it stronger by deploying redundancy. In this blog, we provide a detailed view of the mergers by Public Sector Banks (PSBs), why PSBS are merging, what happens after this merger in terms of the banking landscape, etc., and the benefits & challenges with this kind of initiative.
Financial stability: The very reason behind merging public sector banks was to create such institutions which are big enough that they can withstand financial shocks and at the same offer better services by being more accessible since they have a wider reach.
Operational Efficiency: Mergers help in doing away with redundancy, cutting down on operating expenses and thereby optimizing resource utilization across the banking network.
Global Competitiveness: Consolidating resources will help these banks to be more competitive globally and in line with global banking standards.
State Bank of India (SBI) and its Associates (2017): One of the largest mergers in Indian banking history, where SBI absorbed five of its associate banks, creating a unified banking entity.
Bank of Baroda, Vijaya Bank, and Dena Bank (2019): This merger was aimed at creating the third-largest lender in India, enhancing the bank's operational capabilities and reach.
Punjab National Bank, Oriental Bank of Commerce, and United Bank of India (2020): This merger created the second-largest public sector bank in India, with improved efficiency and customer service.
| Merger Year | Merging Banks | Merged Entity | Key Highlights |
|---|---|---|---|
| 2017 | SBI and 5 Associate Banks (State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore, State Bank of Hyderabad) | State Bank of India (SBI) | Created the largest banking entity in India. |
| 2019 | Bank of Baroda, Vijaya Bank, Dena Bank | Bank of Baroda | Third-largest lender in India, focused on increasing efficiency and reach. |
| 2020 | Punjab National Bank, Oriental Bank of Commerce, United Bank of India | Punjab National Bank | Second-largest public sector bank, enhancing operational capabilities. |
| 2020 | Canara Bank, Syndicate Bank | Canara Bank | Focused on improving scale and customer service. |
| 2020 | Union Bank of India, Andhra Bank, Corporation Bank | Union Bank of India | Strengthened Union Bank's position in the banking sector. |
| 2020 | Indian Bank, Allahabad Bank | Indian Bank | Improved capital base and operational efficiency. |
Larger lending capacity The banks have more capital affects economic growth.
Standardized processes and more integrated technology have resulted in improved customer experience as well.
Issues: While the benefits cannot be denied, mergers have also come with their set of challenges including employee integration difficulties, culture wars, and substantial requirements for IT system transformation.
Ongoing Consolidation: The consolidation wave is expected to persist as the government aims for larger, healthier financial institutions.
Digital Transformation in the Limelight As these entities grow post-consolidation, they are increasingly choosing digital banking solutions to cater to a wider consumer base and improve operational efficiency.
Recent mergers of public sector banks in India are indicative of a major change in the country's banking scene. As difficult as the process is, ultimately a more healthy and efficient group of banks will survive in the aftermath as existed before it started. This consolidation is significant in terms of the future of banking that would emerge as banks evolve.