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Why PSU banks mega merger plan is good despite opposition from trade unions

Krishnanand Tripathi
PSU Bank Mega Merger, SBI, PNB, Bank of Baroda

PSU Bank Merger: Modi government’s decision to merge 6 small and medium sized public sector banks with 4 bigger banks to ultimately create a dozen large public sector banks has sharply divided the opinion among the stake-holders. Trade unions and several bank employees union, including Bharatiya Mazdoor Sangh, have opposed the move, fearing that it may lead to job losses. However, top former officials of banking sector have supported the move saying that it will increase the efficiency and cut down the operational cost in banking sector. It’s a good move that will bring down the cost and also help in reducing the bad loans of public sector banks, said a former top official of a public sector bank.

"It’s a good move. It will bring down the cost due to branch rationalisation. Administrative cost and other associated costs like cost of publicity etc will also come down," a former CMD of Oriental Bank of Commerce told Financial Express Online.

Oriental Bank of Commerce is one of the banks in the government’s mega-merger list. OBC and United Bank of India (UBI) will be merged with India’s second-largest public sector bank-Punjab National Bank to create a megabank.

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"If there are several branches of a merged entity in the same area then the bank will only keep that branch where the property is owned by the bank and all the branches on rented properties will be closed," said a senior official of Indian Banking Organisation.

However, the new entity will still not be able to surpass India’s largest bank State Bank of India which has seen the similar merger with five of its associate banks – In 2017, State Bank of India merged with itself five of its associate banks – State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad, and State Bank of Patiala and also with Bharatiya Mahila Bank in 2017.

Banking sector experts believe that it will also help to cut down the non-performing assets (NPAs) of the public sector banks that are estimated at around Rs 8.06 lakh crore in March this year.

"Reduction in the number will also lead to faster resolution of of NPAs due to involvement of less number of management teams in the discussion," the former CMD of Oriental Bank of Commerce told Fnancial Express Online.

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In the second round of consolidation, total of six banks will be merged with four larger public sector banks. In addition to the merger of OBC and UBI with PNB, four other banks will merge into three larger public sector banks.

The Syndicate Bank will merge with Canara Bank. While Corporation Bank and Andhra Bank will merge with Union Bank of India and Allahabad Bank will merge with the Indian Bank. This round of merger will bring down the total number of public sector banks to 12 and reduce the inter-bank competition among public sector banks.

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According to banking sector experts, the mergers will also help the staff of weaker public sector banks in getting better training that is available to the employees of big banks.