Law & Economics

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CIA- III
PRINCIPLES OF ECONOMICS
1ST YEAR BBA/LLB A
Submitted To Submitted by
FREDDY THOMAS Siddhil shah
ASSISTANT PROFESSOR 2050436
School of law, BBA/LLB A
Christ (Deemed to be University)
The finance minister of India Mrs Nirmala Sitaraman, announced on 30th

august, 2019 announced a plan to merge 10 public sector banks into 4.
This was announced as a part of plans to create fewer but stronger
global sized banks to boost the economy.
Now what are bank mergers?
Bank mergers are situations where two banks pool in their liabilities and
assets and become one.
When banks merge they can consolidate their debt, which reduces the
amount of interest they pay compared to the Total debt two separate
banks carry on their own.
Mergers are important for the consolidation and expansion purposes,

that is why in today's scenario many private sector banks are genuinely
interested in mergers and acquisitions.
They are also crucial for the economy as they are most of the time
successful in saving weak banks which fail in meeting expectations.
History of Indian bank mergers

Mergers of banks began in India in the 1960s in order to bail out the
weaker banks and protect the customer interests.
Canara Bank + Syndicate Bank

The Pai family which founded Syndicate Bank has also been the force
behind making Manipal a hub for education and healthcare.
Between 1949 and 1960, both these banks merged 27 banks into their
fold, showing strength at a time when banks elsewhere were failing.
In 1969, the government nationalised 14 banks and 49 mergers took

place.
These mergers were mostly of private sector banks.
In the period between 1969 and 1991, 13 mergers took place and in
1980, 6 banks were nationalised.
Post liberalization in 1991, huge economic reforms were initiated by the

government of India. In the period between 1995 and 2015, as many as
22 mergers took place.
Between 2015 to 2017, 5 associates of SBI and Bharatiya Mahila Bank

were merged in the SBI. This resulted in SBI being one amongst the 50
largest banks in the world.
The government merged Dena bank and Vijaya bank with Bank of
Baroda.
Then in 2019 the government a mega merger wherein 10 public sector

banks will be merged to form 4 large banks.
The four sets of banks have been created out of canara bank and
syndicate bank merger; Indian bank and Allahabad bank merger; Union
Bank of India, Andhra bank and corporation bank merger; and the bank
to be created after merger of Punjab National Bank, oriental bank of
commerce and united bank of India.
The mega merger has left untouched 6 other banks out of which two are
overseas and the four have regional focus.
The untouched banks are Bank of India, Overseas bank of India, Central
Bank of India, Punjab and Sind bank, Bank of Maharashtra, Uco bank
will continue as separate entities.
Reasons for the mega merger:
Except for a few public sector banks, all other banks lack funds and clear
paths to become profitable. The lack of vision, casual and
careless attitude of its employees have affected the performance of
these banks.
The few reasons behind the mega merger are:
 Bad loans and NPA’s

The public sector banks have always been in the headlines for giving out
bad loans and increase in Non-performing assets over the years. There
was no good governance of these banks, as there were so many. The
bad loans given to the likes of Nirav Modi, Mehul Choksi and Vijay
Mallya are clear indications of its bad and irresponsible governance.
The bad loans of Indian banks had peaked at ₹10.36 trillion as of 31st
march, 2018.
 Debt
Due to bad management of banks, Bad loans, NPA, the debt of these
public sectors rose significantly and was beyond repair. Every time the
government needed to intervene to clear the banks debts using the
common taxpayer’s money.
The losses resulted from heavy provisioning requirements for stressed
assets and eroded the bottom-line. A large number of public-sector
banks, 14 out of 19, posted a consecutive loss in 2018-19.
 Bad management
Due to the size and number of public sector banks, the focus has been
divided and hence bad governance and management of these banks.
No Authority and responsibility was present. There will be more focus on
these banks after the merger as they come under a centralised
leadership and management.
 Employment:
Many of these public sector banks would have automatically shut
down due to the disastrous state of affairs. Hence many people
would have lost their job either directly or indirectly. Hence the
merger gives them another chance at survival.
Bank merger and size
 The first merger will merge Oriental bank of commerce and united
bank, with punjab national bank to create the second largest bank
with 17.95 Lakh crore business and 11,437 branches.
 The second merger will be canara bank and syndicate bank,

creating the fourth largest public sector bank with 15.2 Lakh crore
business and a branch network of 10324.
 The third merger of Andhra bank and corporation bank with Union
Bank of India will create India's 5th largest public sector bank with
14.59 lakh crore business and 9609 branches.
 The merger of Allahabad bank with Indian bank will create the 7th
largest public sector bank with 8.08 lakh crore business having
strong branch networks in the north south and east of the country.
India has 12 Banks Now

The biggest overhaul in public sector banks has left India with only 12 banks now instead of
18 before the Merger. According to the Government this decision of making large entities will
make the Indian banks capable of meeting the higher funding needs of the economy and will
help in acquiring the global scale.
Banking order (Largest to Smallest) Business in Lakhs of crore Rupees Market Share
State Bank of India 52.1 22.5
PNB+OBC+United Bank 17.9 7.7
HDFC Bank 17.5 7.6
Bank of Baroda 16.1 7
Canara + Syndicate Bank 15.2 6.6
Union+Andhra+Corporation Bank 14.6 6.3
ICICI Bank 12.7 5.5
Axis Bank 10.6 4.6
Bank of India 9.0 3.9
Indian + Allahabad Bank 8.1 3.5
Source: ToI dt Aug 31, 2019

Impact On Indian economy and common man
 These larger banks are better equipped with facing global

competition and markets.
 Merger will help in better risk and NPA management
 For the bank, retaining and enhancing its identity as a larger bank
becomes easier. After the merger, benefits of merger are
enormous and the biggest is generation of a brand new customer
base, empowering of business, increased hold in the market
share, opportunity of technology upgrade. Thus overall it proves to
be beneficial to the overall Economy.
 High lending decisions can be taken appropriately and swiftly.

 Leads to increase in profitability and raises the standard of living.
 Better management and more organised set up will ensure
optimum utilization of resources.
 For the common man there will be more branches of the bank they
have an account in due to the merger.
 Provides an improved efficiency ratio for business operations as
well as banking operations which is beneficial to the economy.
 Chances of surviving for underperforming banks increases hence
customer trust remains intact which is important for the Economy.
The weaker one gets merged into the stronger one and gets the
benefit of large scale operations.

Larger and bigger size of the Bank will help the merged banks to
offer more products and services and help in integrated and
informed growth or progress of the Banking and financial
Sector.
Problems arising due to mergers:
 Cooperation needed in every decision which might not be ideal as

thinking perspectives, ideas and risk taking abilities of different
organizations are different. It eventually grows into friction and rift
which, if not managed well, may lead to the downfall of the
organization as a whole.
 Banks are merged only on papers. Their people and culture are
difficult to change. It is a recipe for disaster as it leads to poor
culture fit not ideal for the organization or the economy.
 Many large banks have collapsed during a financial crisis, while
small ones have survived due to their small focus.
 If employees are not motivated enough, the downfall of the
organisation is for sure as they are not up for the task of a merger.
Unhappy employees only give bad results.
 So far small scale losses and recapitalization could revive the
capital base of small banks. Now if the giant shaped bank books
huge losses
or incurs high NPAs as it had been incurring, it will be difficult for
the entire banking system to sustain.
Bibliography
Economic times
Times of India
MBA universe.com
YouTube channel, Times of India, India today and NDTV

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The finance minister of India Mrs Nirmala Sitaraman, announced on 30th

Now what are bank mergers?

Mergers are important for the consolidation and expansion purposes,

History of Indian bank mergers

Canara Bank + Syndicate Bank

In 1969, the government nationalised 14 banks and 49 mergers took

Post liberalization in 1991, huge economic reforms were initiated by the

Between 2015 to 2017, 5 associates of SBI and Bharatiya Mahila Bank

Then in 2019 the government a mega merger wherein 10 public sector

Reasons for the mega merger:

 Bad loans and NPA’s

Bank merger and size

 The second merger will be canara bank and syndicate bank,

India has 12 Banks Now

State Bank of India 52.1 22.5

PNB+OBC+United Bank 17.9 7.7

HDFC Bank 17.5 7.6

Bank of Baroda 16.1 7

Canara + Syndicate Bank 15.2 6.6

Union+Andhra+Corporation Bank 14.6 6.3

ICICI Bank 12.7 5.5

Axis Bank 10.6 4.6

Bank of India 9.0 3.9

Indian + Allahabad Bank 8.1 3.5

Source: ToI dt Aug 31, 2019

 These larger banks are better equipped with facing global

 High lending decisions can be taken appropriately and swiftly.

Problems arising due to mergers:

 Cooperation needed in every decision which might not be ideal as

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