Mega-merger of 10 state-run banks into four larger PSBs approved by the Cabinet

The Union cabinet has approved the consolidation of 10 public sector banks (PSBs) into four entities, a move aimed at having fewer but stronger lenders in India. “The amalgamation is being done so that customers are able to reap the benefits of larger banks being scaled up and more funds being available for credit," Finance Minister Nirmala Sitharaman told reporters.

“Banks are fully on board and this will be effective from 1 April," Sitharaman said. “To a large extent, I am convinced that the banks are on course. They have no issues carrying forward with the merger activity…core interest for banking; customers have been kept in mind."

At present, India has 18 state-owned banks compared with 27 in 2017. After the merger, the number will further come down to 12.The finance ministry’s decision is in line with the NDA government’s push for consolidation of state-owned banks, which it believes will not only lead to economies of scale, but also make lenders stronger, more competitive, and improve their risk-taking appetite.

“For existing customers of all the amalgamating banks, this will increase access to banking services by about 3,000 branches or more. In addition, the customers will benefit through investments in technology-enabled smart banking, such as paperless tab-banking, faster loan processing, banking from home, and customer-need driven credit offers," a senior government official said, requesting anonymity.

In April 2019, Bank of Baroda (BoB) became the country’s third largest lender after its merger with Dena Bank and Vijaya Bank. In 2017, five associate banks and Bharatiya Mahila Bank had merged with SBI.

“We have definitely gone into the details of Bank of Baroda’s amalgamation, looked at what has been the outcome in the short span, with an intention of understanding if there was any lesson that needs to be learnt and what impact it (amalgamation) had on the performance," Sitharaman said.