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Merger or an amalgamation is considered as
a situation where the business of two or more entities becomes into a single
entity. While the transaction and process behind a merger are time-consuming,
the benefits of the merger have to be considered. The process behind a bank
merger is complex and involves a large number of parties that contribute to the
successful event of the merger. In all the industries, the process of merger is
beneficial to the development of the merged entity. This will also indirectly
contribute to the increase in the number of products offered by the merged
entity, integrated technology services, economies of scale, new customers,
increased profits and large scale operations. The main benefits of a merger are
for businesses to improve their operations and reduce competition.
Apart from the above benefits, the merger
markets have their drawbacks as well. Therefore, before proceeding with a
transaction, it is important to conduct research and due diligence for both the
entities. By conducting the above, the transaction can effectively take place
smoothly without any difficulties. This procedure and merger process would be
there irrespective of the type of business considered. In the banking business,
mergers take place in order for the bank to gain access to new customers,
products and economies of scale and scope. Mega bank mergers take place
throughout the world, and the main purpose behind the merger is to improve the
accessibility of bank.
Table of Contents
Though there are benefits of bank mergers,
there are also potential drawbacks which the banks have to evaluate as a reason
for the merger. Therefore, it is important to understand the benefits and
drawbacks of the mega banks mergers. Mega Bank mergers have the following
benefits and drawbacks:
However, there are various disadvantages/
drawbacks in the merger process related to banks. Some of the drawbacks of bank
mergers are as follows:
Also, Read: Merger and Acquisition Process India.
The largest consolidation of banks has occurred. The Mega Bank Mergers is between 10 public sector banks to create 4 public sector banks. Finance Minister Nirmala Sitharaman considered that this merger process should take place. In the financial quarter of 2018-19, the profits of the banking industry were low. This was considered in the 4th quarter of 2018-19. In the 1st quarter of 2019, there was an improvement in the amount of revenues of the bank. Only 6 of the banks showed remarkable performance in the last quarter of 2018-19.
In order to reduce the amount of
competition amongst banks and to increase growth nationally, this step was
considered. Mega Bank Mergers would not only affect economic growth nationally,
but it would considerably improve the growth at a global level. Previously the
Union Government considered the merging process for different banks. State Bank
of India merged with five associate banks and another public sector bank.
Though the system was effective, there were a lot of complications post-merger
of the bank. In 2019, there was a merger process between Dena Bank, Vijaya Bank
and Bank of Baroda. After the merger process, these banks were not considered
as separate entities but considered as a single entity. The finance minister
with the view of making the economy reach USD 5 trillion considered that mega
bank mergers should take place.
Mega Bank mergers are taking place with 10 public sector banks to make it into 4 public sector banks. The following Mega Bank Mergers are:
From the above, the impact of the mega
bank mergers would create more competition with the private sector banks. Apart
from this, these banks would offer new forms of products to existing customers. This merger process between the banks took
place on 01 April 2020. Before this merger was about to take place, the Finance
Minister discussed with the senior executives of the major banks the possible
outcomes of the merger.
On the long run, the process of the mega
bank mergers would be beneficial to the economy. It would make the banking and
financial system of India stronger on the global outlook. Therefore this
process of mega bank mergers is required for economic progress.
The consolidation would make sure four
established banks have been set up.
Banks which do not have proper operational efficiency or having non-performing
loans would gear up and get proper operational framework from stronger banks.
Apart from this, banks which have technology and Information technology
integrated platforms would perform better if these processes are streamlined in
an efficient way.
As a method of financial
injection, the government of India has given Rs 68, 855 crore for the banking
merger plan. Out of this budget, Rs. 16000 crores were given to Punjab National
Bank. Union Bank of India was given Rs 11,768 crore;
Canara Bank was given Rs 6,571 crore. Indian Bank was given more than Rs 2500
Crore. Allahabad Bank was provided Rs 2,153 crore, United Bank of India Rs
1,666 crore and Andhra Bank was given Rs 200 crore.
With this in hand, the Government wanted bank business in India to strengthen as an effect on the merger. The following figures reveal the post-merger scenario of the impact of the Mega Bank Mergers:
The above table shows the figures of the
Mega Bank Mergers, post-merger scenario.
In light of these figures, the mega bank
mergers prove beneficial to the Indian Economy.
Though there are many benefits of the Mega
Bank Mergers, there are also potential drawbacks of the merger process. The
following are the issues related to the mega bank mergers:
Though the merger between the banks
occurred on 01 April 2020, there would be doubts related to issues such as the
effect of the COVID-19 lockdown on the pre-merger and post-merger process. Some
of the challenges faced by the merging banks:
The process of merger between the banks
was not prohibited by COVID-19 but only disrupted to a specific extent.
There are many benefits and drawbacks in
the bank merger process. The mega bank mergers have reduced the amount of operating
public sector banks in India. Through the merger, the Government of India
decided to increase the strength of banks on a domestic as well as an
international front. With the merger, the banks would be able to achieve an increased
number of customers, economies of scale, access to new banking products and
integrated technology. Though there are many benefits for the banks, there are
equally a lot of drawbacks. These drawbacks have to be faced by the customers
and shareholders of the bank. Some of the drawbacks are documentation issues, credit/debit
card issues and issues related to corporate governance. These drawbacks can be
removed if the systems related to banking processes are streamlined in an effective
way. Even though mega bank mergers have many drawbacks, the benefits outweigh
Read, Also: The Best Advice for Mergers & Acquisitions.
Varun Hariharan has completed the Legal Practice Course from BPP Law School, Manchester. He has a Masters in Commercial and Corporate Law from the Queen Mary University of London and LLB Honours from Bangor University, UK. He specialises in law related to corporate, artificial intelligence and technology law.
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