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Finance Minister of India Nirmala Sitharaman on Friday announced the merge of 10 Public Sector Banks (PSBs) into 4 to create a robust banking system with global reach.
Indian Bank will be merged with Allahabad Bank (anchor bank - Indian Bank); Punjab National Bank, Oriental Bank of Commerce and United Bank to be merged (anchor bank - Punjab National Bank); Union Bank of India, Andhra Bank and Corporation Bank to be merged (anchor bank - Union Bank of India); and Canara Bank and Syndicate Bank to be merged (anchor bank - Canara Bank).
Instead of 27 public sector banks in 2017, now the country will 12 public sector banks after the latest round of consolidation of PSU banks.
“The mergers should help create stronger institutions thereby leading to efficiencies of scale and stronger balance sheets. It will help rationalize costs across many areas including branches, people, technology, etc. Customers should be able to get better service and better product suite and the best of all the merged entities. The Banking sector as a whole will get strengthened due to obvious efficiencies and will lead to enhanced productivity and better results thereby leading to better lending too," Surinder Chawla, head retail liabilities and wealth management, RBL Bank was quoted as saying by livemint
No Change in FD Rates
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Agreeing that this can be a great move for the banks as well as customers, the Chief Economist of Bank of Baroda, Sameer Narang was quoted saying: “For BoB post the merger, there are more customers, so we are working on integration now. Interoperability of services have been offered so now customers can walk into any of the branches and avail all services. There is no change in FD rates for any of the customers," he said.
Customers No Need to Take Immediate Action
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Clarifying that there’s no need for customers of one or more of the banks being merged to panic, Vishal Dhawan, founder of Plan Ahead Wealth Advisors, was quoted saying: “There is no need for any immediate action for account holders in any of these banks. However over a period of time, you will need to track how the integration changes impact your account number and possibly some of the automated instructions that you have set up like for payments of utility bills, loans, SIPs, etc., so that they are not impacted, as well as the validity of your existing cheque leaves.”
Customers Need to Be Prepared
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The chief executive officer of BankBazaar, Adhil Shetty says there will be a several changes that customers will have to be prepared for. “To start with, the account number and customer IDs, as well as the associated IFSC codes may change. If you have accounts with more than one bank, then the two accounts may be allotted a single customer ID. So, while you may not need to do the KYC all over again, you still need to make sure that your email ID and mobile number is updated with the bank so that you do not miss any official intimations on the allotment of new accounts.”
But all of this will take time to play out. “For borrowers, locker holders and cardholders nothing changes immediately. The changes will happen when the IT systems get integrated which should take about 18-24 months," said Narang.
Interest Rates
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Following a merger, there’s no need to worry about your interest rates going up in case you are a borrower. Your interest rate will remain unchanged. You will continue to pay your Equated Monthly Installment (EMI) as usual since your loan will simply be transferred to the merged entity. However, there’s no clarity if one of the merging banks offers repo rate-linked loans whether the merged entity will also do so.
“All banks will eventually have to link their loan rates with the repo rate because the RBI is encouraging banks to do this," said Narang.
Sitharaman emphasized that mergers are aimed at incorporating the best practices of all individual banks in the merged entity. She added that this would also give them wider branch networks. But there might also be some branch rationalization in the long term. “More than one of the merging entities may have branches in the vicinity. So chances are that one or more of those would be shut," said Shetty.
No Impact in Relationships With Banks
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According to chief executive officer and founder of Investography Pvt. Ltd, Shwetha Jain, customers needn’t get too fretful. “They shouldn’t worry too much as it would not impact day to day workings of the banks. Usually, people are not changed immediately and hence their relationships with the banks will not be impacted immediately," she said.
The mergers are aimed at providing a consolidated and strengthened PSB network in the country. The move, in the long run, can be beneficial for customers going forward.
By Sowmya Sangam
