Consolidation in Banking Sectors: All You Need To Know

The definition of consolidation means the act of combining or merging people or
things. An example of a consolidation in banking is when two individual banks
merge together to form a single banking sector.

Why banks consolidate?

Consolidation will increase capital efficiency and able to recover bad loans. It will
help in leveraging the synergies among the banks that have diverse portfolios,
focus areas and coverage areas. Actually consolidation helps small banks to stay
profitable. Larger banks targets on small banks to expand and sometimes larger
banks join together to make greater profit.

Banks consolidate to eliminate the competition in the banking sector. Sometimes
consolidation will to access domestic and international capital and to better
compete with other larger banks to acquire and retain customers. It will also
provide impetus to merged entities by increasing their ability to support large
leading and have competitive financial capacity.

How banks manage with customers while consolidation?

When banks approved to consolidate, they will notify their customers about their
consolidation and they will make sure about customers transition of saving/current accounts, locker facilities, fixed deposits, loan accounts, etc. with the new banks.

As customers your account number and customer ID, as well as the associated
IFSC codes may also change to the new bank. It helps to improve the professional standard. Multiple posts get abolished, resulting in substantial financial savings banking mergers improve risk management in customer details.

Benefits of bank consolidation
  •  Helps to expand banks coverage.
  •  Banking operation which is beneficial to economy.
  •  Provides better efficiency ratio for business.
  •  Helps in gaining large number of customers
  • Helps in institution scale up quickly
  •  Reduce cost of operation
  • Improves professional standards
  •  Helps in substantial financial savings
  •  Improve risk management

Banks which are consolidated

The Banks; merger dated April 1, 2020 has resulted in the creation of seven large PSBs with scale and national reach, with each amalgamated entity having business of over Rs.8 lakh crore and it has helped to create banks with scale comparable to global banks and capable of competing effectively in India and globally.

State Bank of India, Bank of Baroda Punjab National Bank, Canara Bank,
Union Bank of India, Indian Bank will be the six merged banks.

From April 1, 2021, cheque-books and passbooks of over half a dozen banks which went through a merger will become invalid. The banks affected by these changes are Dena Bank, Vijaya Bank, Corporation Bank, Andhra Bank,
Oriental Bank of Commerce, United Bank and Allahabad Bank.

Banks like Punjab National Bank, Union Bank, Canara Bank and Indian Bank,
and Bank of Baroda and SBI that were part of an earlier round of consolidation.
Agencies The Department of Investment and Public Asset Management will now
take the proposal to a group of ministers.

The six PSBs that will remain independent are as follows:
  • Indian Overseas Bank,
  •  UCO Bank,
  •  Bank of Maharashtra,
  •  Punjab and Sind Bank.
  •  Bank of India,
  •  Central Bank of India.

Written By - Reshma Madhini

Edited By - Vanshu Verma