On the day of big GDP growth loss data, the government has come out a mega merger of PSBs. The latest round of public sector bank consolidation seeks the merger of 10 PSBs into four banks. After the merger, the number of total PSBs will be reduced to 12.

This is the major merger since the launch of the current phase of bank consolidation that started with the merger of SBI associates under SBI.

The latest phase of consolidation which is the final one according to the Finance Secretary Rajiv Kumar, came when the country is celebrating the 50th anniversary of first bank nationalization in 1969.

Following are the new entities formed after the amalgamation announced by the Finance Minister on 30th of August 2019.

  1. Indian Bank: Indian Bank and the Allahabad Bank will be merged under Indian Bank.
  2. Punjab National Bank: PNB, OBC and United Bank to be merged to continue as PNB
  3. Union Bank of India: Union Bank of India, Andhra Bank and Corporation Bank to be merged to continue as Union Bank of India.
  4. Canara Bank: Canara Bank and Syndicate Bank will be merged to continue as Canara Bank.

Along with this merger decision, the Finance Minister also unveiled some governance reforms for the PSBs besides announcing capital infusion into selected PSBs.

Government says the road map is for 12 PSBs

The merger consolidates India’s PSBs under 12 banks compared to 27 in 2017. It was then the government decided to create a single SBI by merging all associated banks.

As of now, the road map is final and 12 is the final number; according to the Financial Secretary Rajiv Kumar.

Government sees several benefits like overall cost reduction while going through the merger.

Governance reform package

The Finance Minister announced some customary governance reforms along with the merger decision. Firstly, PSB boards will be given autonomy and will be enabled to do succession planning. The boards will be also given flexibility to fix sitting fee of independent directors. Non-official directors will perform role equivalent to independent directors.

“To make management accountable to board, board committee of nationalised banks to appraise performance of general manager and above including managing director,” – the Finance Minister Ms Nirmala Sitharaman said while announcing the consolidation.

Second is the appointment of Chief Risk officer with PSBs. Here, a Chief Risk Officer will be appointed from the market by providing market linked salaries. Chief General Managers will also be appointed.

Capital infusion

The government also announced capital infusion plan along with the new merger scheme. Capital infusion totalling over Rs 55,000 crore into nine public sector banks is to be made in the coming months.