The Union Cabinet on Wednesday approved amalgamation of 10 public sector banks, including Allahabad Bank, Andhra Bank and OBC, to create large four state-owned lenders with effect from April 1, Finance Minister Nirmala Sitharaman said.
These will be in addition to State Bank of India, Bank of Baroda, and Bank of India.
Following the consolidation, there will be seven large public sector banks (PSBs), and five smaller ones. There were as many as 27 PSBs in 2017.
As per the mega consolidation plan, Oriental Bank of Commerce and United Bank of India will merge 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.
"Sticking to the April 1, 2020 deadline, banks are fully on board. The Cabinet may have given the decision today, they were on course and doing everything that requires to be done so that this (amalgamation) will be effective from April 1," said Sitharaman, who had announced the largest consolidation in the banking space in August last year.
The merger would result in creation of seven large PSBs with scale and national reach, with each amalgamated entity having business of over Rs 8 lakh crore.
"The Mega consolidation would help create banks with scale comparable to global banks and capable of competing effectively in India and globally.
"Greater scale and synergy through consolidation would lead to cost benefits which should enable the PSBs enhance their competitiveness and positively impact the Indian banking system," a release said.
In addition, 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 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.
Last year, Dena Bank and Vijaya Bank were merged with Bank of Baroda. Prior to this, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with the State Bank of India.
Citing an example of merger of Dena Bank and Vijaya Bank with Bank of Baroda, Sitharaman said the operating profit of the resulting lender has improved and retail loans are now sanctioned in 11 days (average) from 23 days earlier.
Meanwhile, sources said the banks which are going to be amalgamated would soon be announcing their share-swap ratios on stock exchanges as the deadline is approaching fast.
The anchor bank Punjab National Bank will become the country's second largest bank, with business size of Rs 17.94 lakh crore, after SBI which has business of over Rs 52 lakh crore.
Bank of Baroda will become the third largest bank, followed by Canara Bank, Union Bank of India, Bank of India, and Indian Bank.
The other PSBs are Central Bank of India, Indian Overseas Bank, UCO Bank, Bank of Maharashtra, and Punjab and Sind Bank.