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Banking is nothing but accepting deposits and giving credit. Banks are trustworthy, and hence people keep their money in saving and current accounts. This money is then extended as credit to those in need. The rate of interest that a depositor receives is less than what is charged from a borrower, and this difference is the earning of the bank. In India, banking service is provided by both the government as well as private players. Before 1 April 2020, there were as many as 18 public sector banks (PSBs) in the country. The question is, why have so many banks when all of them carry out more or less the same functions?
The picture has now changed and we today have 12 PSBs. Let’s know more.
Which are the banks that no longer exist?
The mega PSB consolidation drive of the Government of India has significantly altered the landscape. Oriental Bank of Commerce and United Bank of India have now become a part of Punjab National Bank. On similar lines, Syndicate Bank has now merged its operations with Canara Bank; Andhra Bank and Corporation Bank will now be a part of Union Bank; and Indian Bank takes over Allahabad Bank.
In short, Oriental Bank of Commerce, United Bank of India, Syndicate Bank, Andhra Bank, Corporation Bank and Allahabad Bank cease to exist from the beginning of financial year 2020-2021.
Should customers be worried?
The answer is an emphatic no. Any person banking with a PSB that now no longer will operate under its own name has nothing to be wary of. All deposits and other arrangements remain unaffected. Therefore, when we say that 6 PSBs now cease to exist, it only means that they cease to exist under their original names. Now on, they will function under the name of the PSB that has taken over. For example, all customers ofOriental Bank of Commerce and Union Bank are now customers of Punjab National Bank.
Does it mean nothing else changes?
No, not exactly. Some things, in fact, will change. Banks that have been merged will now offer similar products to their customers. It means there will be harmonization of products. Indeed, different PSBs have hitherto been offering customized solutions to their clients. From now on, however, the arrangements for all customers of the merged entity will be alike. Take for example the emergency credit line introduced by Indian Bank for its customers to help them tide over the coronavirus crisis. This product will now also be available for Allahabad Bank customers.
But why did government undertake consolidation?
The global banking landscape tells us that bigger is better. When SBI took over the associate banks, it became way stronger than what it was. After consolidation, PNB will now be India’s second largest bank. Merger brings with it synergy benefits for banking companies. Now, they will have more assets and a larger customer base. Customers too gain from this exercise. They can now have access to more number of bank branches and ATMs. Bigger banks will have a greater capability to give credit, and hence, borrowers would have wider options. Undoubtedly, the geographical reach of banks has increased and by combining their strengths, they will emerge as a winner.
Will this result in some disruption?
No. The government and consolidating banks have made it a point that there is no disruption due to the merger exercise. If you are a customer of any of the 6 banks that will now operate under a different name, you need not worry about getting new account numbers or debit/ credit cards. Everything remains the same, for now. In fact, the IFSC code of branches will also remain unchanged. You can use the same internet banking facilities and the previous login credentials remain valid. Asking your friend to deposit some money in your bank account? Give her the same details even if your bank has now merged with any of the 4 PSBs. Worry not, the money will reach your account.
Indeed, on a later date, the customers of those PSBs that will not operate under the name of PSBs taking over them may get issued new account numbers. IFSC may also see a change, and any subsequent cards issued after the expiry of present ones will look different. However, whenever this happens, customers will be notified in advance.
All in all, banks merger is set to change the banking landscape of India for good. Customers will have wider access to branches and ATMs. Cost and revenue synergy is set to benefit banking operations. Bigger banks will have greater ability to manage things and extract more profitability from operations.
Also read: The 2020 Stock Market Crash
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