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Bank Mergers – Reform Or Distraction

The economy is facing one of the significant slowdowns it has ever met, and every person is worried about the outcomes. Everyone at this point of time can be seen discussing the condition of the economy and suggesting ways to revive it. So, it has been the case with the government. They have been trying its might to bring positive changes to the economy and reduce the effects of the slowdown. The government has rolled out a series of decisions in the past few days — the latest of them being the merger of the banks.

Bank Mergers and Reasons:

On 30th August 2019, finance minister Nirmala Sitharaman unveiled the plan to merge ten public sector banks. It was stated that such a step is taken to create stronger leaders and to boost the economy further.

Finance Minister Nirmala Sitharaman declared four new sets of mergers — Punjab National Bank, Oriental Bank of Commerce and United Bank of India will join to form the nation’s second-largest lender. Canara Bank and Syndicate Bank will merge to form the fourth largest PSB. Union Bank of India will amalgamate with Andhra Bank and Corporation Bank and form the fifth PSB. Furthermore, Indian Bank will merge with Allahabad Bank to create the 7th PSB with strong branch networks in the south, north and east of the country.

In 2018, the government had merged Dena Bank and Vijaya Bank with Bank of Baroda, forming the third-largest bank by loans in the country.

However, Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab & Sind Bank, will remain independent and will function as separate Public Sector Undertakings. After the merger, India will have 12 banks instead of the 27 public sector banks operating earlier.

The decision about the merger has been unanimously taken by the government and the Reserve Bank of India with the point of view to give the much-required boost to the economy. It is expected to improve the functioning of all the concerned banks. Betterment such as:

  1. Improvement in the management
  2. Better poor loans or bad debts management.
  3. Enhance risk management.

Another point that has been of concern is the deployment of the workforce. Many workers in the banks were of the view that all this would ultimately result in layoffs. However, the finance minister has made it clear that they have no such intention.

One of the vital questions that remain unanswered is whether the mergers will bear the fruits that are expected? We often see that the major bank scams are a result of government pressures, and often, the banks are under an obligation to please those in power. Will the mergers reduce the bad loans or the reason behind such bad loans?

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