Apart from these bank, boards of their smaller counterparts, to be merged into anchor banks, will soon meet as well, according to regulatory filings. In the case of Baroda’s merger with Dena Bank and Vijaya Bank announced in September last year, boards of these state-run banks ratified the merger in no time. Finally, the share swap ratio was announced in January and the merger became effective since 1 April.
Last Friday, finance minister Nirmala Sitharaman announced the merger of Punjab National Bank, Oriental Bank of Commerce and United Bank with business worth ₹7.95 trillion to make India’s second-largest bank. The other merger will be between Canara Bank and Syndicate Bank, which will make the country's fourth-largest bank, with ₹15.2 trillion in business.
Also, Union Bank of India will be merged with Andhra Bank and Corporation Bank to build India’s fifth-largest public sector bank with ₹14.59 trillion in business. Indian Bank will be merged with Allahabad Bank to make India’s seventh-largest PSB with a business of ₹8.08 trillion.
Trade unions representing various sections of bank employees, however, criticised the move, calling for nationwide protests against the mergers. The United Forum of Bank Unions (UFBU), an umbrella body of nine bank unions, will meet on 11 September in New Delhi to decide the course of action, including bank strikes and other forms of protests.
“Big banks do not necessarily mean strong banks," said C.H. Venkatachalam, general secretary, All India Bank Employees’ Association.
Venkatachalam said the board meetings would just be formalities and the ratified proposal will then go to the Reserve Bank of India (RBI) and Parliament for final approvals.
One of the banks tried to assuage employee concerns and ruled out job losses and branch closures. Padmaja Chunduru, managing director and chief executive, Indian Bank, said in a statement on Sunday that the merger of Indian Bank and Allahabad Bank will create a robust amalgamated entity with a pan-India presence.
“Indian Bank currently has a strong presence in South India, whereas Allahabad Bank is present in northern and eastern India. This will also enable major scaling up of both the banks’ business due to complementary networks since currently both use the same CBS platform (BaNCS), thereby enabling quick realisation of gains," Chundru said.
However, in public sector bank mergers, some employees are given the option of taking voluntary retirement. Around 260 employees from Dena Bank had chosen to retire instead of joining Bank of Baroda.
In April 2017, State Bank of India (SBI) merged five of its subsidiaries with itself. This process, which made SBI one of the world’s top 50 large banks in terms of asset, saw 4,000 employees from SBI and the associate banks opting for voluntary retirement.
After the merger announcement, credit rating agency Moody’s Investors Service said in a note that while consolidation will provide scope for improvement in corporate governance, there will not be any immediate improvement in credit metrics since all of them have relatively weak solvency profiles.
“These measures, though, are incremental rather than structural, and the quality of their implementation will determine their effectiveness," according to Srikanth Vadlamani, vice-president, financial institutions group, Moody's Investors Service.
The government will also infuse about ₹55,250 crore into state-owned banks but Sitharaman said these were “absolutely approximate numbers". In FY19, the government had infused over ₹1 trillion in public sector banks with the last round of ₹48,239 crore in February. Since FY14, the government and the Life Insurance Corp of India have infused ₹3 trillion in PSBs.
Interestingly, although the government had given a year’s extension to Bank of Baroda chief P.S. Jayakumar last year owing to the merger, heads of Canara Bank and Punjab National Bank are unlikely to get an extension when their terms end in the next few months. The Banks Board Bureau (BBB) has already invited applications for the post of managing director (MD) and chief executive officer (CEO) for these two banks.