The Union Cabinet on Wednesday approved the mega-merger of state-run banks to strengthen banking structure in the country. 

Finance Minister Nirmala Sitharaman had in August last year announced that 10 state-run banks would be merged into four larger PSBs. After the consolidation of these banks, India will have 12 Public Sector Banks.

Announcing the move, Sitharaman had said the creation of next-generation banks was imperative for India to become a US $5 trillion economy in the next five years.

In a meeting chaired by Prime Minister Narendra Modi, the Cabinet on Wednesday approved the consolidation in Public Sector Banks (PSBs) with effect from April 1, 2020. 

The mega-merger includes the amalgamation of Oriental Bank of Commerce and United Bank of India into Punjab National Bank; Syndicate Bank into Canara Bank; Andhra Bank and Corporation Bank into Union Bank of India; and Allahabad Bank into Indian Bank.

The government said the amalgamation would result in the creation of seven large PSBs with scale and national reach with each amalgamated entity having a business of over Rs 8 lakh crore. 

Punjab National Bank, Oriental Bank of Commerce and United Bank will be merged to form the second-largest public sector bank with the business of Rs 17.95 lakh crore.

The merger of Canara Bank with Syndicate Bank will form the fourth largest Public Sector Bank with a business of Rs 15.20 lakh crore.

Union Bank of India will be merged with Andhra Bank and Corporation Bank to become the fifth-largest public sector bank now with a total business of Rs 14.59 lakh crore. 

Indian Bank will merge with Allahabad Bank to form the seventh-largest Public Sector Bank with a business of Rs 8.08 lakh crore.

The mega consolidation would help create banks with a scale comparable to global banks and capable of competing effectively in India and globally, the government said in a statement. 

“Greater scale and synergy through consolidation would lead to cost benefits which should enable the PSBs to enhance their competitiveness and positively impact the Indian banking system,” it said. 

“Consolidation would also provide impetus to amalgamated entities by increasing their ability to support larger ticket-size lending and have competitive operations by virtue of greater financial capacity. The adoption of best practices across amalgamating entities would enable the banks to improve their cost efficiency and risk management, and also boost the goal of financial inclusion through wider reach,” it added. 

Further, with the adoption of technologies across the amalgamating banks, access to a wider talent pool, and a larger database, PSBs would be in a position to gain competitive advantage by leveraging analytics in a rapidly digitalising banking landscape.

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