Merger of Banks

Last Updated on April 1, 2019 by Bharat Saini

Merger of Banks or Consolidation of Public Sector Banks (PSBs) has been recommended by various committees, including Narasimhan Committee II on Banking Sector Reforms (1998), Leeladhar Committee (2008) and Nayak Committe (2014) constituted by RBI; and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 provide that the Central Government, in consultation with the Reserve Bank of India (RBI), may make a scheme, inter alia, for the amalgamation of any nationalised bank with any other nationalised bank or any other banking institution.

Government, taking note of the above, the potential benefits of consolidation for banks as well as public at large through enhanced access to banking services; and with a view to facilitate consolidation among public sector banks to create strong and competitive banks, serving as catalysts for growth, with improved risk profile of the bank, approved a framework for proposals to amalgamate PSBs through an Alternative Mechanism (AM). AM, after consulting RBI, in its meeting held on 17.9.2018, approved that Bank of Baroda, Vijaya Bank and Dena Bank may consider amalgamation of the three banks.

Three Banks have since considered amalgamation and the Board of Dena Bank has recommended the same, while Boards of Bank of Baroda and Vijaya Bank have given in-principle approval therefor.

• Merger of Bank of Baroda, Vijaya Bank and Dena Bank is another step towards consolidation of Banks after the State Bank of India was consolidated by merger of its associate banks in 2017, to create a mega global bank.
• Merger of these three Banks will create a lender with a nationwide reach, which will be the third largest in India. As Bank of Baroda already has a wide spread network, Dena Bank and Vijaya Bank are more regionally focused.
• Merged entity will have a total business base of ₹82 lakh crore deposit base of ₹8.41 lakh crore, an advances base of ₹6.4 lakh crore and 85675 employees’ strength.
• Presently there are 21 government owned banks and post-merger of these three Banks this number will be reduced to 19.

Implementation of Narasimham Committee-I (1991) Report on Financial Sector Reforms and Narasimham Committee-II (1998) Report on Banking Sector Reforms that helped unleash the potential of banking in India are also recognised as a factor towards minimising the impact of Global Financial Crisis starting 2007.

Narasimham Committee on Banking Sector Reforms recommended for merger of large Indian banks to make them strong enough for supporting international trade which lead to consolidation of banking system as under:

• New Bank of India merged with Punjab National Bank during 1993-1994.
• Benares State Bank Ltd merged with Bank of Baroda in 2002.
• Global Trust Bank merged with Oriental Bank of Commerce in 2004.
• State Bank of Saurashtra merged with State Bank of India (SBI) 2008.
• State Bank of Indore merged with SBI in 2009.
• Bharatiya Mahila Bank merged with State Bank of India in 2017.
• Following associate banks of SBI merged with it in 2017:
  • State Bank of Bikaner and Jaipur
  • State Bank of Hyderabad
  • State Bank of Mysore
  • State Bank of Patiala
  • State Bank of Travancore.