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What Will PSB Mergers Mean For Customers, Employees And Shareholders?

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With a motive to strengthen the public sector banking (PSB) business, Finance Minister Nirmala Sitharaman, on Friday, announced the consolidation of 10 PSBs into 4. These mergers will take time to be implemented, however, stakeholders of the decision, that is, the customers, the employees and the shareholders will be affected.

The banks to be merged include Punjab National Bank, Oriental Bank of Commerce, United Bank, Union Bank of India, Andhra Bank, Corporation Bank, Canara Bank, Syndicate Bank, Indian Bank and Allahabad Bank.

Employees
 

Employees

At the press briefing, Finance Secretary Rajeev Kumar said that the government will ensure that no bank employee's job is hurt by this consolidation decision. Last year, when Dena Bank and Vijaya Bank were merged with Bank of Baroda, no jobs were lost.

The consolidation was also done with an intent to expand the reach and network of a single bank. The employees of smaller banks will be absorbed to work for the larger entity.

Customers
 

Customers

When SBI's (State Bank of India) five associate banks and Bharatiya Mahila Bank were merged with SBI, all the customers of the smaller banks became SBI customers. Similarly, if you are a customer of any of the to-be-merged banks, you will automatically become a customer of the anchor bank.

Anchor Banks Amalgamating Banks
Punjab National Bank Oriental Bank of Commerce, United Bank
Canara Bank Syndicate Bank
Union Bank of India Andhra Bank, Corporation Bank
Indian Bank Allahabad Bank
  • Your account will not be closed, and you will not lose money. It will just become a bank account of the new entity.
  • Once the merger is completed, your bank will inform you about the cheque books, passbook, card, etc changes. This will all be free of cost. They will include the new codes, logos, and the name of the bank. You will also be given enough time to change them and in the meantime, you can continue to use the existing cards and chequebooks, they are definitely valid.
  • Some branches may close. This depends on the reach of the banks, that is if there is an Oriental Bank of Commerce and United Bank branch in the same area, one may be closed.
  • Your fixed deposits or other kinds of deposits will remain safe and earn the interest you were supposed to till the time of maturity.
  • Savings accounts will earn the interest that will be offered by the newly formed bank.
  • The new entity will also have a new internet banking portal. During the initial time soon after the merger (transitional phase), your bank's existing link will be redirected to the new one.
  • The IFSC and MICR codes of the branches used in online transactions will also be changed over time and duly informed to you. You will have to change the details of any automated ECS transactions like EMI transactions in the later phase.
  • All the loan rates and terms and conditions associated with the existing loan will remain unchanged. Further changes will depend on the new bank's policies. You can always switch your loan to a different bank if you are not satisfied.
  • Note that the bank and the government will ensure that the least amount of inconvenience is caused to the consumers. Additionally, mergers will widen the reach of the bank formed and the services provided would be superior.

You will not lose your money and there is no need for you to close the account or make deposit withdrawals.

Shareholders

Shareholders

Dena Bank and Vijaya Bank's merger with Bank of Baroda was announced in September 2018. In January 2019, BoB announced its board's approval of a share exchange ratio where shareholders of Vijaya Bank were to get 402 equity shares of Rs 2 each of BoB for every 1,000 shares held of Rs 10 each. Similarly, Dena Bank's shareholders received 110 shares of Rs 2 each Bank of Baroda for every 1,000 shares held of Rs 10 each.

Similar announcements may be made in due time after rounds of discussions and considerations.

As for stock movement, this will be largely guided by how the combined entity will perform with their new found increase in business size. Only time can tell of how long it will take before the functions of the banks normalize and how the management will go forward in utilizing the resources to improve the performance.

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