Modi Govt Announces Mega Merger of Public Sector Banks

New Delhi: In a move that is set to trigger massive resistance from lakhs of bank employees and officers, the Narendra Modi government on Friday announced the biggest bank consolidation plan in the country by merging 10 public sector banks into four bigger banks.

After this move, the total number of public sector banks in the country has been reduced to 12 from 27 in 2017. 

Earlier this year, Dena Bank and Vijaya Bank were merged with Bank of Baroda. Prior to this, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with the State Bank of India.

As per the mergers announced by finance minister Nirmala Sitharaman at a press conference here, United Bank of India and Oriental Bank of Commerce will be merged with Punjab National Bank, making the proposed entity the second largest public sector bank.

Syndicate Bank will be merged with Canara Bank, while Allahabad Bank will be amalgamated with Indian Bank.

Similarly, Andhra Bank and Corporation Bank will be consolidated with Union Bank of India.

“In place of fragmented lending capacity with 27 public sector banks in 2017, now there will be only 12 state-run banks post consolidation,” Sitharaman said.

The finance minister also said banks will be provided adequate capital.

Last week, the minister had announced that the Rs 70,000 crore capital infusion for banks for the current fiscal would be front-loaded.

Financial Services Secretary Rajiv Kumar, who was also present at the press conference, said there was no retrenchment in the past consolidations, including of SBI, and service conditions of employees improved.  "Employees will only benefit with the mergers," he added.

However, banking sector unions hold a different view. 

Speaking with The Hindu earlier this year, All India Bank Employees Association  general secretary, C.H. Venkatachalam, had disputed the government’s claim that consolidation would make banks ‘stronger’.  Citing the example of State Bank of India, which saw six banks merging into it, he said: “SBI has not become any bigger. Rather, problems of SBI have become bigger. 

After the consolidation announced on Friday, Punjab National Bank will have business size of Rs 17.94 lakh crore, becoming the second largest PSB after SBI with a business of Rs 52.05 lakh crore.

The consolidated Canara Bank will be the fourth largest bank with business of Rs 15.2 lakh crore, followed by Union Bank of India at Rs 14.59 lakh crore.

After subsuming Allahabad Bank, Indian Bank will be the seventh largest state-lender with business size of Rs 8.08 lakh crore.

Bank of Baroda, after the merger with Vijaya Bank and Dena Bank, had become the country's third largest bank. It has a business of Rs 16.13 lakh crore, according to news agency PTI.

The government’s announcement comes days after the Reserve Bank of India cleared transfer of Rs 1.76 lakh crore surplus fund to the government to meet its expenditure, which includes filling up the tax revenue shortfall as well as bank recapitalisation of Rs 70,000  crore.

Earlier, in a scathing attack on the government for the “haste” in bank mergers in the face of mounting non-performing assets or bad loans, the Communist Party of India (Marxist) had said that “the problems of public sector banks emanate from the deliberate default in loan repayment by big corporate houses,” adding that the solution “lies in stern action by the government for outright recovery of the huge loan amounts from these defaulter corporates with penalty, instead of the futile exercise of merger." 

(Inputs from PTI)