Know its Impact: How ‘10 PSU Banks-merger into 4 Banks’ will impact government and the common man

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banks-merger
Banks-merger

Can Banks-merger help the Indian government to improve the situation of money lending?


The Indian economy has seen a record decline of GDP in the first half quarter of the current financial year. The magnitude of the slowdown is massive as per the data released by the  National Statistics Office.  India’s economy advanced 5 per cent in the first quarter which is lowest since the first quarter of 2013. It was expected that India will grow at 5.7 per cent but the country missed the market consensus. A slowdown in the manufacturing and construction sector is being called the main reasons for the decline in the Indian economy.

Will merger help the Indian government? 

Government after facing many backlashes by Industrialists and CEOs from big companies came up with big announcements. The merger of 10 public sectors Bank in 4 big banks was one of the highlights of India’s finance minister Nirmala Sitharaman in recent week. A new set of measures also included changes in foreign direct investment (FDI) cap limits across various sectors.

These announcements are indicating at the acknowledgement and a statement that the Indian economy is going through a difficult phase. However, export demand and lower productivity are connected to the general global economic atmosphere.

Indian economy is battling a serious liquidity crunch and serious crisis of confidence since the collapse of the inter-finance operator, the IL&FS group in September 2018. Even the public sector banks are unwilling to dole out credit without dealing or reclaiming with existing bad debts or NPAs. The situation for Non- Bank Financial Corporations which provide credits to medium and small scale enterprises have worsened.

Which Bank merged into which one?

The announcements of the merger of 10 big public sector banks into 4 banks made big news on TV screens. Punjab Bank will anchor the merger with Oriental Bank of Commerce and United Bank of India and become the second-biggest bank in India. Canara Bank and Syndicate Bank are merging into one bank. The third merger is between Union Bank of India, Corporation Bank and Andhra Bank. Allahabad Bank is merging with Indian Bank to bring down the total number of state run-lenders to 12 from the earlier 27 which existed two years before.  Earlier, six small PSBs were merged with SBI and Vijya Bank was merged with Dena Bank and Bank of Baroda.

The merger of banks might lead to the worsening condition of lending patterns or bad debts. This will lead banks to become bankrupt or insolvent.  Most of the announced names of banks mostly operate regionally and might need a fundamental structuring in their lending approach which might improve balance sheets. The Introduction of IBC has improved corporate borrowing and is expected to yield positive steps.  However, the implementation of Code needs to continue swiftly.

The merger will help the government to co-ordinate and push for re-capitalisation easily.  It can also allow an enhanced risk appetite for the merged and merging banks.  The government will assign funds of (1.76 crores) received from the RBI (Reserve Bank of India) a few days before.

 The banks will now become big enough to fall under the category of “too big to fail”. We have seen this with other large credit-fueled economies. This also includes the private banks of US and state-owned financials bank of China. This “too big to fail” concept is an idea which state that certain institutions remain so vital to the economy that they can’t be allowed to get failed in any circumstance.  Their failure can cause damage to countries economy and citizens. Now, RBI and Indian government will be more vigilant and will monitor the ‘risk of default’ for these big banks.

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How it affects common people? 

-You might have to change your cheque books. The present cheque of banks may remain valid for initial few days but it will ultimately be replaced.

– Unless the accounts are seamlessly merged into the financial system of the newly merged bank, you might have to change the details you have given for various purposes like auto-credit of salary, auto-debit of various charges/bills, auto credit of dividends via ECS and more.

– Credit/Debit Cards may get changed to the merged entity from the merging banks. Although, they will remain in use for the first few days to ensure no disruption in services.

– Keeping the financial trail of fixed deposits and paperwork might increase as things will be transferred to merged banks.

– The number of the branch would increase and so will the comfort of more branches if the merged entity is not shut down.

Challenges

The biggest challenge for all the banks will be amalgamating the datasheet of all accounts.  Not all the banks work on same software which will be a big challenge to banks to collide.  Employees who might have to change branch will also have to cope with software of the banks where they are going to merge.

Banks will have to change the physical infrastructure of their company. Punjab Bank is merged into Oriental Bank of commerce and United Bank of India. They all will become Punjab National Bank. Now, if there were branches of OBC and PNB within the 100 metres, now there will be two PNB banks within 100 metres.  The OBC’s infrastructure might get shifted to the PNB setup.

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