Bank Mergers in India: List, Reasons, Status and Impacts

Bank mergers mean two or more banks coming together under a single operation and resources. Generally, a larger bank having better resources combines with a smaller bank to benefit economies of scale through reduced costs.

A bank merger reduces the banking operations and other costs and manages NPA (non-performing assets) and their risks in a better way.

For example, Punjab National Bank was merged with the United Bank of India and Oriental Bank of Commerce, and now it’s the second largest public sector bank in India after SBI.

The Indian banking industry is considered to be growing swiftly and has changed itself into a dynamic industry. A new dimension is added to the banking sector through consolidation of banks through mergers. These mergers have resulted in the formation of India’s largest financial institutions.

The rationale behind the bank mergers includes operational efficiency, stimulating economic growth, fortifying financial institutions, and delivering better service to customers.

The merger of PSU banks has proved to be beneficial for the overall economy till now, but we need to wait and watch to fully understand the progress of mergers.

Read on to learn better about the list of public sector bank mergers, their impacts, and challenges for the banks after the merger of PSU banks.

Table of Contents

The Merger of Public Sector Banks in India

A bank merger is a “merger” of two banks where each bank pools its assets and liabilities to become one entity. During the merger of banks, one or more ‘amalgamating’ banks are merged with an ‘anchor’ bank.

The Banking Regulation Act of 1949 specifies the procedures for bank mergers. The idea of bank mergers has been floating in India since 1988 after the recommendation of the M. Narasimham Committee.

The Indian government approved the “merger” of Bharatiya Mahila Bank (BMB) State Bank of India’s five associate banks with SBI in 2017. This merger resulted in SBI becoming one of the 50 largest banks in the world.

The Public Sector banks like Canara Bank, Punjab National Bank, Indian Bank, Bank of Baroda, and Union Bank of India have grown into large financial entities after bank mergers.

List of Merged Banks in India

The list of other bank mergers is provided below in the table.

Bank Merger List	Merger Details	Merger Date/Year
Punjab National Bank + United Bank of India + Oriental Bank of Commerce	With this merger, Punjab National Bank has now become India’s second largest public sector bank in terms of branch network, only after SBI.	1st April, 2020
Union Bank of India + Andhra Bank + Corporation Bank	Now, Union Bank of India is the fifth largest public sector bank in India after Andhra Bank and Corporation Bank merged with it. Now, the bank has the capability to build its business two to four times.	1st April, 2020
Canara Bank + Syndicate Bank	Syndicate Bank merged with Canara Bank, so Canara Bank is now the fourth largest public sector bank in India.	1st April, 2020
Indian Bank + Allahabad Bank	Allahabad Bank merged with Indian Bank, making Indian Bank the seventh-largest public sector bank post-merger.	1st April, 2020
Bank of Baroda + Dena Bank + Vijaya Bank	Vijaya Bank and Dena Bank were merged with the Bank of Baroda. The merger created India’s third-largest public sector bank.	1st April, 2019
State Bank of India + State Bank of Mysore + State Bank of Hyderabad + State Bank of Bikaner and Jaipur + State Bank of Patiala + State Bank of Travancore + Bharatiya Mahila Bank	SBI was merged with its associate banks along with Bharatiya Mahila Bank making it the largest bank in India, with nearly 24,000 branches across the country.	1st April, 2017
HDFC Bank + HDFC	The merger of HDFC into HDFC Bank made it India’s third-largest entity in terms of market capitalization.	4th April 2022

Which Bank Merged with Which Bank?

The Punjab National Bank merged with the Oriental Bank of Commerce and United Bank of India to become the 2nd largest public sector bank in India.

The Andhra Bank and Corporation Bank has been merged with Union Bank of India and now it has become the fifth largest public sector bank of India.

The Indian Overseas Bank, Bank of Maharashtra, Punjab and Sind Bank, Bank of India, Central Bank of India, and UCO Bank are region-centric banks that will function as independent entities.

Which Banks are Currently Merged in India?

Oriental Bank of Commerce, United Bank of India, Andhra Bank, Corporation Bank, Syndicate Bank, Indian Bank, Vijaya Bank, Dena Bank, and SBI associate banks, and Bharatiya Mahila Bank are banks that merged with Punjab National Bank, Union Bank of India, Canara Bank, Allahabad Bank, Bank of Baroda, State Bank of India respectively.

HDFC merged with HDFC Bank in April 2022.

Is the Bank of India Merged with Other Banks?

No, the Bank of India didn’t merge with other banks

Is the Central Bank of India Merged with any Bank?

No, the Central Bank of India didn’t merge with any other bank.

Is Union Bank of India a Merger with UCO Bank?

No, the Union Bank of India didn’t merge with UCO Bank. The Union Bank of India merged with Andhra Bank and Corporation Bank.

Which Banks Merged with the Bank of Maharashtra?

No, the Bank of Maharashtra did not merge with any Bank. Since it is a region-centric bank, it will work as an independent entity.

Which Banks Merged with Union Bank?

Andhra Bank and Corporation Bank are merged with Union Bank of India.

Which Bank Acquired Indian Bank?

Allahabad Bank acquired the Indian Bank.

Status of Customers After Bank Mergers in India

While the merging bank’s customers won’t be significantly impacted, the following are some of the changes that will occur as a result of bank mergers in India:

Once the merger is completed, existing loans will be transferred to the anchor bank, and borrowers will continue to make their regular monthly payments.
Both loans and investments would have the same terms and an unchanged interest rate.
The merged bank’s debit and credit cards would need to be exchanged for those issued by the anchor bank.
A single customer ID can be issued to account holders who have multiple accounts with different PSBs.

With this merger, the branches of the ‘anchor’ bank will function as the branches of ‘amalgamating’ banks.

For example, Indian Bank branches will now work as both Indian Bank and Allahabad Bank branches. So, the customers of Allahabad Bank will be treated as customers of Indian Bank. All the guidelines and policies of Indian Bank will apply to customers of Allahabad Bank.

Reasons for Bank Merger in India

The main reason for bank mergers in India is the bad loans of public sector banks.

The other reasons for bank mergers in India include improving operation efficiency, monitoring, governance, and accountability.

The bank merger will also lead to economies of scale and create global stronger banks by reducing costs.

The bank merger in India is also aimed at creating next-generation banks with a strong presence and global outreach with enhanced credit capacity to fund important economy sectors for growth and development.

Impact of Public Sector Banks Merger

It is important to understand both the merits and demerits of bank merger to have a clear picture of its impact.

Merits of Bank Merger of PSU Banks

The Indian Government merged the weaker banks with stronger banks to prevent weaker banks from going out of business due to Non-Performing Assets (NPAs).

The merits of PSU banks’ merger in India are given below.

If the same borrower has taken out loans from many banks, the legal fees and other associated costs will be reduced with a bank merger.
Large customer bases are beneficial to banks’ profitability. After the merger, banks will have increased market capitalization, a stronger business portfolio, a greater appetite for risk, higher-quality assets, and stronger risk management systems.
The merged entity will experience higher savings in cost and economies of scale.
Bank merger would result in the minimization of overhead and costs by removal of unnecessary expenses and job positions.
The banks’ combined strength will allow them to more easily and quickly fund large-scale projects that they were previously unable to finance on their own.
By managing a smaller number of banks, the Reserve Bank of India (RBI) will be able to conform Indian banks to the same standards as developed countries. This will enable the banks to operate more internationally.
With mergers, the banks will be able to combine their resources and use them more effectively. Branching out roles and functions will become simpler as a result of the mergers.
A wider selection of financial instruments and a broader variety of products is available for customers.
There is less reliance on the government for funding because the larger PSU bank has funds of its own, so the government doesn’t have to bail out public banks frequently.

Demerits of PSU Banks Merger in India

Since most banks are regional in nature, mergers will have a negative impact on the benefits of decentralization.
As various banks use different software platforms, it will be a hard task to integrate them during the bank merging process.
Because the NPA volume of the larger banks is higher due to the pooling of the NPA of the weaker institutions, the larger banks will be under more pressure to perform.
Bad loans and poor governance are intrinsic problems that the larger banks cannot escape through mergers.
While smaller banks may not be affected as much, larger banks are significantly affected by the global economic crisis.
Different internal conflicts and disagreements related to promotion and other managerial level may arise.

Challenges for Banks Due to Mergers

During bank mergers, the banks may face several administration and financial issues that include:

As many departments in the banks have to be merged, the banks could face several governance-related issues.
The banks need to handle the data properly while merging.
If there is a capital need after the merger, the capital infusion would be much higher.

Frequently Asked Questions on Bank Mergers in India

What will happen to my customer ID and account number if my bank merges with another bank?

The same customer ID, account number, debit card, IFSC, checkbooks, MICR, and so on will remain usable for customers after the merger. In the future, however, customers will likely receive new account numbers and IDs.

Are bank mergers new to India?

No, bank mergers are not new in India as The Bank of Bengal, Bank of Bombay, and Bank of Madras were merged in 1921 to establish the State Bank of India.

What does branch rationalization mean?

The branch rationalization means that if there’s a branch of the acquiring bank and the merged bank is in the same area, the acquired bank’s branch will shut down its operation in that area.

Does the bank merger affect the money I invested in Fixed Deposit?

No, the bank merger doesn’t affect the invested money in fixed deposits. FDs are usually transferred, together with all other assets and liabilities, during a bank merger. Interest rates and maturity periods, among other terms and conditions of your FD, would stay the same.

What is the economic impact of bank mergers?

The economic impacts of bank mergers include better customer services, risk diversification, and a large reduction in transaction costs.

Conclusion

Bank mergers were an essential step taken towards consolidation and growth of the economy. Non-performing assets (NPAs) are a growing problem for banks in India, not because of small banks but rather because of ineffective approaches to handling NPAs.

The Government took this step to resolve the structural issues in the banks and increase trust and understanding between the public and the banks.