Banking Mergers in India – Checklist of Merged PSU Banks, Benefits, and Challenges

Final Up to date on Jun 3, 2025 by Aishika Banerjee

Many Public Sector Banks (PSB) depend upon the federal government’s support to stay on, including to its burden. In 2014, the PJ Nayak Panel really helpful privatising state-run banks to lighten this burden on the federal government. However the thought of banking mergers in India solely took off in 2018. The RBI had mentioned that merging them would assist revamp India’s banking system, creating international, sturdy and well-funded banking majors, if profitable.

In August 2019, PM Narendra Modi introduced a mega-merger of 10  Public Sector Enterprise (PSU) banks in India into 4. The next yr, FM Nirmala Sitharaman conveyed the cupboard’s approval of the identical. She additionally mentioned that the merger would happen after the boards of the banks met and determined the way to take issues additional. The mergers had been to take impact from 1st April 2020 (as per a press launch dated twenty eighth March 2020).

So how do banking mergers in India affect you as a buyer or a stakeholder within the banking system? Let’s check out that together with a listing of merged banks, and the professionals and cons of banking mergers in India.

What’s a Financial institution Merger in India?

A banking merger occurs when two or extra banks pool their property and liabilities to come back collectively underneath a single constitution. Sometimes, the merged entity will retain the identify of the financial institution, taking on the others. In uncommon instances, although, banks could kind a newly chartered financial institution with a brand new identify. 

Banks Merger Checklist 2020

As talked about, 10 state-run banks had been amalgamated with the respective anchor banks—these are those that drove the merger course of.

10 state-run banks recognized for mergers earlier than 2020

Be aware:

1. Financial institution of Baroda was merged with Vijaya Financial institution and Dena Financial institution. The merger took impact on 1 April 2019.
2. SBI’s affiliate banks and Bharatiya Mahila Financial institution had been merged with the State Financial institution of India in 2017.

Phrases after the merger

• From 1st April 2022, purchasers (debtors and depositors) of the merged financial institution are handled as the shoppers of the anchor financial institution
• Oriental Financial institution of Commerce and United Financial institution of India, merged with the anchor financial institution PNB, could be value ~Rs. 7.95 tn., making it India’s 2nd largest financial institution.
• At ~Rs. 15.2 tn., the Canara Financial institution, merged with Syndicate Financial institution, would develop into the 4th largest in India.
• Andhra Financial institution and Company Financial institution are merged with Union Financial institution of India. Submit-merger, the anchor financial institution could be value ~Rs. 14.59 tn., making it India’s fifth largest state-run financial institution.
• After Allahabad Financial institution is merged with Indian Financial institution, the latter could be the seventh largest PSB at ~Rs. 8.08 tn.
• To assist banks handle and dodge related dangers, state-run banks needed to appoint specialised Chief Threat Officers (CRO) with market-linked compensation.

Benefits of Financial institution Mergers

• A merger will increase the capital base of the anchor financial institution. It additionally offers the financial institution entry to a bigger pool of cash, permitting it to make selections referring to excessive lending necessities. This may, in flip, cut back the recapitalisation necessities and for value discount in financial institution mergers, which the federal government would have needed to pump in in any other case.
• Since each property and liabilities of all of the banks in query are merged, acquisitions assist banks strengthen their steadiness sheets. It could finally assist nullify the Non Performing Belongings (NPA) of smaller PSU banks in India.
• Indian banking mergers additionally broaden the anchor financial institution’s buyer base by bringing the merging banks’ purchasers underneath one umbrella. Greater banks get publicity to the regional focus of smaller PSBs.
• Public sector financial institution mergers and acquisitions assist banks scale extra successfully when it comes to operations and operational effectivity in banking mergers. They assist fill technological and monetary gaps, negating the necessity to construct such capabilities from scratch. Prices throughout branches would even be optimised.
• Mergers add to the anchor financial institution’s services, giving clients entry to a greater variety of monetary merchandise along with the present ones.
• Mergers and acquisitions carry the branches of all of the banks in query underneath one umbrella, thereby rising the size and breadth of the anchor financial institution’s community.
• Mergers create bigger banks, that are higher outfitted to face international competitors.

Challenges in Financial institution Mergers

• If there’s a necessity for capital after the merger, it might demand a comparatively greater capital infusion from the federal government.
• Taking weaker banks underneath its umbrella would expose the anchor financial institution to governance-related points.
• Sad worker unions of banks would trigger strikes and different troubles.
• Because the smaller banks’ NPA administration in merged banks could be merged with the larger financial institution, the latter’s strain to handle them would enhance.
• Tradition match is as necessary as different feasibility elements of merging banks. Since acquisition additionally means merging human assets throughout the PSBs, employees points attributable to adjustments within the work surroundings and inner tips, if not addressed properly, may backfire on the very goal of the merger.
• On the danger administration in merged banks degree, the distinction in perspective, if not addressed, can result in friction. If not contained, the merger may develop into unsuccessful, resulting in the downfall of your complete organisation.
• The affect of mergers on banking sector and clients has an emotional quotient. If the shoppers aren’t communicated well timed in regards to the merger and its aims, they might pull off, resulting in a lack of enterprise.
• Recapitalising smaller banks is probably not that huge a monetary problem to the federal government in comparison with larger banks. With the danger of the challenges of smaller banks snowballing into a much bigger problem for the larger financial institution, your complete financial system, not to mention the banking system, must face the results.

How do the Banking Mergers in India Impression Clients? 

• Current loans could be transferred to the merged financial institution after the acquisition, and debtors would proceed paying the identical EMIs.
• Services could be out there in additional branches.
• The speed of curiosity on investments and loans would stay unchanged, and their phrases would prevail.
• Your checking account quantity, buyer ID, and IFSC code may change.
• The validity of an present chequebook can change. That apart, the cheque e book would get replaced with that of the anchor financial institution.
• Debit and bank cards issued by a merging financial institution must be exchanged with that of the merged entity
• Account holders holding a number of accounts throughout PSBs might be allotted a single buyer ID
• A number of the present financial institution branches could be shut with the intention to rationalise branches.

Most of those adjustments come into impact solely after 18-24 months of the merger after the banks combine their IT methods and overcome the mixing challenges in financial institution mergers.

Do Mergers of PSBs Actually Strengthen the Banking System?

Though the rationale behind merging public sector banks was to attain elevated effectivity, some specialists opine that, in reality, it’s really weakening stronger banks and the banking system as an entire.

Abhiman Das, who teaches economics on the IIM-Ahmedabad, and Subal Kumbhakar, who teaches the identical topic on the State College of New York, US, have penned an article arguing that latest mergers or banking consolidation India have carried out extra hurt than good. By way of the stochastic frontier strategy (SFA), the duo discovered little financial grounds for the PSU Financial institution mergers India of PSBs that passed off lately.

On Dena Financial institution’s efficiency earlier than and after the merger, its effectivity had declined ~60% from 2014 to 2018! Its value inefficiency had additionally gotten worse, rising by over 30% throughout the identical interval. As per the duo, Dena Financial institution ought to have been restructured a lot earlier. 

Speaking of Oriental Financial institution of Commerce (OBC), they discovered it to be performing properly until 2011, however the effectivity declined to 86% from ~95% earlier than recovering to 92% in 2020. In addition they claimed that there have been different examples exhibiting a decline in PNB’s post-merger effectivity.

RBI’s Retrospective Tackle PSU Banks’ Mergers

In its newest Monetary Stability Report, the Reserve Financial institution of India (RBI) acknowledged that merged public sector banks are riskier than unmerged ones. Utilizing inventory market indicators to measure systemic danger within the banking sector, RBI discovered a decreased danger within the banking sector in 2021 in comparison with the primary wave of the pandemic. The apex financial institution acknowledged that the systemic danger posed by state-run banks was greater than the non-public gamers.

Whereas the merger of banks is meant to assist obtain better efficiencies for the banks in query, revitalise your complete banking system, and lighten the federal government’s burden of funding, the effectiveness of the merger relies on how properly it’s applied.

Financial institution Merger in India – Incessantly Requested Questions (FAQs)

Aradhana Gotur is a Content material Author with 4 years of expertise in private finance, inventory markets, and life-style areas. Having recognised the ability of phrases, she consistently works on utilizing them to boost monetary consciousness among the many lots and meet enterprise aims. Considered one of her best strengths is breaking advanced ideas in an easy-to-understand means.

Newest posts by Aradhana Gotur (see all)