Personal Finance

How the mega bank mergers will impact you

With 27 public sector banks, including the second largest PNB, being merged and reduced to 12, almost every other individual who has a savings account or fixed deposit with a public sector bank is likely to be impacted.

The finance minister in the press conference here today said that the 27 public sector banks existing in 2017 will be reduced to 12 after the mergers announced are implemented. Merger of six smaller PSBs with State Bank of India and the merger of Vijaya Bank, Dena Bank with Bank of Baroda has already taken place. Therefore, 10 public sector banks have already been reduced to two larger ones i.e the post-merger SBI and post-merger BoB.

The finance minister, Nirmala Sitharaman in her press briefing said that the creation of next-generation banks was imperative for India to become a $5 trillion economy in the next five years.

Here is how you are likely to be impacted:
1. Get ready to change your cheque books as the various banks get merged. While the existing cheque books may remain valid for sometime, ultimately they will be replaced with the cheque books of the merged entity.

The next-gen PSBs:

Anchor bank Amalgamating bank
Punjab National Bank Oriental Bank of Commerce, United Bank of India
Canara Bank Syndicate Bank
Union Bank of India Andhra Bank, Corporation Bank
Indian Bank Allahabad Bank

2. You would have given your bank account numbers and IFSC codes for various financial transactions — auto credit of dividends via ECS, auto-credit of salary, auto debit of various bills/charges etc. Unless these accounts are seamlessly merged into the financial system of the new merged bank, you would be required to change the details of your bank given for these purposes. A couple of years, when five associate banks of State Bank of India (SBI) were merged, IFSC codes and names of 1,300 branches were changed. The banking behemoth has changed the names and IFSC codes of branches located in major cities such as Mumbai, New Delhi, Bengaluru, Chennai, Hyderabad, Kolkata and Lucknow. Those who had auto-debits running with these banks like systematic investment plans (SIPs) in mutual funds were impacted. This could be an issue that accountholders of the banks that will be merged now might face.

3. Credit/debit cards issued by the merging banks may have to be exchanged for those of the merged entity although the former are likely to remain valid for the interim period to ensure no disruption in services.

4. Paperwork and keeping financial trail of fixed deposits made will increase a bit as these will be transferred into the merged bank.

5. It is, however, not clear what will happen to the interest rates of those who have loans running with these banks as the MCLR rates are different for different banks.

6. Shareholders of the the publicly listed banks will be impacted. How much the respective shareholders will be impacted will be known once the swap ratios are announced.

6. A plus point is that the branch network would become larger so access to bank branches would become easier provided the merged entity does not shut down all branches of merging banks. The combined entity of Punjab National Bank, Oriental Bank of Commerce, and United Bank of India will become the second largest PSU bank in the country with the second largest bank branch network with 11,437 branches. PNB will be the anchor bank. In the case of the consolidated Indian Bank and Allahabad Bank entity, it will be the seventh largest PSB. Canara and Syndicate Bank will also be merged to become the fourth largest bank. Indian Bank and Allahabad Bank merged. The consolidated Indian Bank and Allahabad Bank will become the seventh largest bank.

7. There is a section of accountholders who will not impacted by these mergers. Sitharaman said that Bank of India, Central Bank of India will continue as is. Indian Overseas Bank, UCO Bank, Bank of Maharashtra and Punjab and Sindh Bank will also continue to operate as is.


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