Published On: Wed, Mar 4th, 2020

Cabinet nod to bank mergers, FM says will lead to higher credit flow

New Delhi: The Union Cabinet on Wednesday approved the mega consolidation in public sector banks (PSBs) with effect from April 1, under which 10 state-run banks would be transformed into 4 big banks. It also approved the scheme of merger submitted by the banks concerned which will be part of the process, which, the government said, would lead to big-ticket lending.

Amalgamations will enable creation of digitally driven consolidated banks with global heft and business synergies

Finance Minister Nirmala Sitharaman said, in a briefing afterwards, that the amalgamations will enable creation of digitally driven consolidated banks with global heft and business synergies.

She said the amalgamations would enhance customer convenience, better branch service, higher credit flow, and lesser time in loan sanctions. She said the banks have been provisioned for the amalgamation related work and there is no worry on this and there is no forbearance from any regulator on this.

The minister said the government has been in regular touch with the merging banks and has taken lessons from the Bank of Baroda, Dena Bank and Vijaya Bank merged where credit flow, customer benefits, and quick retail loan sanctions have gone up.

In one of the biggest consolidation exercise in the banking industry, the government last year announced amalgamation of the Oriental Bank of Commerce and the United Bank of India with the Punjab National Bank, of the Syndicate Bank into the Canara Bank, of the Andhra Bank and the Corporation Bank into the Union Bank of India, and of the Allahabad Bank into the Indian Bank.

The amalgamation would result in creation of seven large PSBs with scale and national reach with each amalgamated entity having a business of over Rs 8 lakh crore. The mega consolidation would help create banks with scale comparable to global banks and capable of competing effectively in India and globally.

Greater scale and synergy through consolidation would lead to cost benefits which should enable the PSBs enhance their competitiveness and positively impact the Indian banking system, a Finance Ministry statement said.

In addition, consolidation would also provide impetus to amalgamated entities by increasing their ability to support larger ticket-size lending and have competitive operations by virtue of greater financial capacity. The adoption of best practices across amalgamating entities would enable the banks improve their cost efficiency and risk management, and also boost the goal of financial inclusion through wider reach.

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