Despite Differences, BJP And Congress Sing The Same Tune On PSB Merger

While the Bharatiya Janata Party (BJP) and Congress do not see eye-to-eye on most issues in the political, economic, social, and religious realms, they are on the same page when it comes to the issue of merger of public sector banks (PSBs).

Even as the BJP-led NDA government initiated mergers in the state-owned banking space during its five-year rule, the Congress party, going by its manifesto for the 2019 Lok Sabha elections, promises to take this exercise forward if it comes to power.

The grand old party, which nationalised a host of private sector banks in two phases in 1969 and 1980 when it held sway at the Centre, says it will amalgamate two or more PSBs so that there will be only six to eight PSBs with a national presence.

Three-way merger

The merger process under the NDA government gathered momentum with the five associate banks of State Bank of India (SBI) and the Bharatiya Mahila Bank getting merged with SBI with effect from April 1, 2017. Further, with effect from April 1, 2019, Dena Bank and Vijaya Bank were merged with Bank of Baroda.

So, if it returns to power, the NDA government will surely press ahead with the amalgamation exercise. In fact, in August 2017, the Union Cabinet had given its in-principle approval for PSBs to amalgamate through an alternative mechanism. The mechanism was created to facilitate consolidation among nationalised banks to create strong and competitive lenders.

That the two national parties are wedded to the process of consolidation among PSBs should warm the cockles of M Narasimham’s (13th Governor of Reserve Bank of India) heart. In 1991, the Narasimham Committee (1st report) suggested a three-tier banking structure in the country through establishment of three large banks with international presence, eight to ten national banks, and a large number of regional and local banks.

LIC-IDBI Bank

After the amalgamation of Dena Bank and Vijaya Bank with Bank of Baroda (BoB), and the acquisition of 51 per cent stake by the Life Insurance Corporation of India (LIC) in IDBI Bank, the number of PSBs have come down to 18 from 21.

The central bank has classified IDBI Bank as a private sector bank for regulatory purposes consequent upon LIC acquiring majority stake in the bank.

When the merger of Dena Bank and Vijaya Bank with BoB to create India’s third-largest bank was initiated, the Finance Ministry, in a statement, said the consolidation will help create a strong, globally-competitive bank with economies of scale and enable realisation of wide-ranging synergies.

The ministry said that leveraging of networks, low-cost deposits, and subsidiaries of the three banks has the potential to yield significant synergies for positioning the consolidated entity for substantial rise in customer base, market reach, operational efficiency, wider bouquet of products and services, and improved access for customers.