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‘Merger of banks will create PSBs capable of achieving economies of scale’

The objective of merger of banks is to facilitate consolidation among state-owned lenders to create banks capable of achieving economies of scale, said Thakur
New Delhi: The objective of merger of banks is to facilitate consolidation among state-owned lenders to create strong and competitive banks capable of achieving economies of scale and realisation of synergy benefits with wider product and service offering for customers, said Minister of State for Finance Anurag Singh Thakur on Monday. The written response submitted in the Lok Sabha by Thakur comes as the government has accorded “in-principle” approval to the merger of 10 banks to form four mega lenders.

‘Merger BoB of -Vijaya-Dena banks has produced visible gains’

Citing the example of the merger of Vijaya Bank and Dena Bank into Bank of Baroda, Thakur said that the rural footprint of the amalgamated bank has increased since amalgamation and with the increased reach and enhanced business engagement with the rural people and farmers, visible gains are incurred including, inter alia, priority sector lending has increased by Rs 4,253 crore to Rs 2,23,128 crore, as on December 31, 2019 and the cumulative balance of Kisan Credit Cards has increased by Rs 1,796 crore to Rs 38,325 crore, as on March 7. In the 11 months since amalgamation, agriculture loan disbursements have increased by Rs 46,690 crore and access to credit through overdraft amount advanced to the Pradhan Mantri Jan Dhan Yojana accounts has also increased by Rs 11.38 crore. The amalgamation of Vijaya Bank and Dena Bank into Bank of Baroda took effect on April 1, 2019. As per the input received from BoB, the total number of branches of the amalgamating banks ie BoB, erstwhile Dena Bank (eDB) and erstwhile Vijaya Bank (eVB), as on March 31, 2019, was 9,447, which increased to 9,481 branches as part of the amalgamated entity, as on February 29. Rural branches too increased from 2,930 to 2,934 during this period.

The backdrop

CRISIL had said in a report in 2019 that if short-term issues are handled well, the government’s plan to merge 10 PSU banks can bring in structural benefits. While noting that there will be clear long-term benefits of the proposed amalgamation, CRISIL had said that any such large scale integration does entail some short-term challenges. The list of such challenges includes managing cultural differences and manpower, branch rationalisation, technological integration, and potential opposition from trade unions. However, it added that if these challenges are handled well, the amalgamation plan will enable PSBs to compete more effectively with other constituents in the financial sector.