Merging of banks/ Other Company be more of good or bad for the Indian economy?

Merging of banks/ Other Company be more of good or bad for the Indian economy?

Hi Aspirants,

Today here we are providing the important facts about Indian Bank Merging. All you need to know about the Merging is good or Bad for Indian Economic and History of Mergers in Indian Bank.

Some of these banks have high NPA So government want to merge them that the balance sheet of these banks looks good. India needs investment and setup of new companies. Currently, Investment is down in India due to slowdown in consumption and lack of liquidity. We are in a locked situation. low consumption is giving signal not to invest and at the same time investment is needed for growth.

♦Advantages of Bank/Company Mergers

  • It will also help in upgradation of technology, increase in profit and raise the standard of living.
  • Through mergers, it will help the banks to scale up its business and gain a large no. of customers quickly.
  • For the bank, retaining and enhancing its identity as a larger bank becomes easier. After the merger, benefits of merger are enormous and the biggest is generation of a brand new customer base, empowering of business, increased hold in the market share, opportunity of technology upgrade. Thus overall it proves to be beneficial to the overall Economy.
  • Help to Reducing the NPA
  • Larger Bank/ Company is capable of facing global competition
  • The merger will reduce the cost of internal and external operation
  • Minimization of overall risk is there due to mergers and acquisitions which is always good from the business point of view
  • Leads to increase in profitability and helps in raising the standard of living which is absolutely crucial for a growing economy like India
  • Chances of survival of under performing banks increases hence customer trust remains intact which is vital for the Economy. The weaker bank gets merged into stronger one and gets the benefit of large scale operations
  • Larger size of the Bank will help the merged banks to offer more products and services and help in integrated growth of the Banking sector
  • A larger bank can manage its short and long term liquidity better. There will not be any need for overnight borrowings in call money market and from RBI under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF)
  • Merger will result in better NPA and Risk management
  • Merger will help in improving the professional standards
  • Bank /Company staff will be under single umbrella in regard to their service conditions and wages instead of facing disparities.

♦Disadvantage

Most of the problems arising due to mergers and acquisitions are more emotional and social in nature than technical or managerial. The major problems which arise are:-

  • The foremost disadvantage is compliance and risk consistency and both the merged organizations have different perspective of thinking, different risk culture so it creates a negative impact on the profitability of the organization.
  • Banks are merged only on papers. Their people and culture are difficult to change. It is a recipe for disaster as it leads to poor culture fit not ideal for the organization or the economy.
  • Managing Director of Federal Bank, V.A. Joseph is of the view that Co-existence of the big, medium and regional banks would be preferable in the present scenario. According to him most acquisitions in India were borne out of compulsions and over 90 per cent of past acquisitions had failed to achieve the objectives.
  • Compliance needed in every decision which might not be favorable as thinking perspectives and risk taking abilities of different organizations are different. It leads to friction and rift which, if not managed well may lead to the downfall of the organization as a whole.
  • Large bank size may create more problems also. Large global banks had collapsed during the global financial crisis while smaller ones had survived the crisis due to their strengths and focus on micro aspects.
  • So far small scale losses and recapitalization could revive the capital base of small banks. Now if the giant shaped bank books huge loss or incurs high NPAs as it had been incurring, it will be difficult for the entire banking system to sustain.

♦History of Mergers in Indian Banking

  • The period from 1961-1969: The period is called pre-nationalization period because in 1969 the government nationalized 14 private banks. As many as 46 mergers took place mostly of private sector banks in order to revive the poorly performing banks which proved to be quite a successful move for the underperforming banks.
  • The period from 1969-1991: The period was called post-nationalization period.

1969 and nationalized the 14 largest commercial banks with effect from the midnight of 19 July 1969.

The following banks were nationalized in 1969:

  1. Allahabad Bank
  2. Bank of Baroda
  3. Bank of India
  4. Bank of Maharashtra
  5. Central Bank of India
  6. Canara Bank
  7. Dena Bank (Now Bank of Baroda)
  8. Indian Bank
  9. Indian Overseas Bank
  10. Punjab National Bank
  11. Syndicate Bank
  12. UCO Bank
  13. Union Bank
  14. United Bank of India
  • It six private banks being nationalized in 1980

The following banks were nationalized in 1980:

  1. Punjab and Sind Bank
  2. Vijaya Bank (Now Bank of Baroda)
  3. Oriental Bank of India
  4. Corporate Bank
  5. Andhra Bank
  6. New Bank of India

Note: Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalised banks and resulted in the reduction of the number of nationalised banks from 20 to 19.
The Period from 2008-2010:

  • SBI first merged State Bank of Saurashtra with itself in 2008.
  • Two years later in 2010, State Bank of Indore was merged with it.

The Period from 2017 –

  • This phase saw five associates of SBI (State Bank of Travancore, State Bank of Hyderabad, State Bank of Mysore, State Bank of Bikaner and Jaipur and State Bank of Patiala) and Bhartiya Mahila Bank getting merged in SBI.
  • Note: Five associates and the Bharatiya Mahila Bank became the part of State Bank of India (SBI) beginning April 1, 2017.

Merger of Banks 2018- The government had merged Dena Bank and Vijaya Bank with Bank of Baroda, creating the third-largest bank.
Mega Merger of Banks 2019 With the mega merger announce on August 30, 2019, ten public sectors banks will be reduced into four large banks.

Banking order (Largest to Smallest)

  1. State Bank of India
  2. PNB +OBC +United Bank:- Punjab National Bank
  3. Bank of Baroda + Vijya Bank+ Dena Bank:- Bank of Baroda
  4. Canara + Syndicate Bank:- Canara Bank
  5. Union Bank + Andhra Bank +Corporation Bank
  6. Bank of India
  7. Indian Bank + Allahabad Bank:- Indian Bank
  8. Central bank of India
  9. Indian Overseas Bank
  10. UCO Bank
  11. Bank of Maharashtra
  12. Punjab and Sind Bank

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