Banks are the backbone of the social and economic structure of any country. They allow deposits from the public and create credits. It is banks which bring about mobility of money so that it may reach out to all factions of the society. The more a bank has lending capacity, the more its role becomes to make the economy robust and competitive.
We will learn how to write an essay on ‘Bank Mergers’ in India. Before we start it, let’s keep in mind some important points to be elaborated:
- What is Bank Merger?
- Why is it necessary?
- What are its Advantages?
A merger is an agreement that unites two existing companies into one new company.
- Only 12 PSBs will remain as compared to 27. Six banks have been untouched namely BOI, CBI, IOB, Uco Bank, Bank of Maharashtra and Punjab and Sind Bank.
- This step will sync in with the vision to transform India into a 5 Trillion US Dollar Economy.
- There will be 3 Tier system
- 3-4 large sized banks will be there
- Region-centric banks will be there as independent entitities
- Mid size banks will be there.
- So as to create fewer and stronger global sized banks. It will boost economic growth by track record. The Finance Minister of India has announced Rs. 55,000 crore recapitalization plan for the banks formed after merger. Besides it, recapitalization will also be infused to the six other banks which are not the part of this merger.
Advantages of Bank Mergers
- Larger banks are capable of facing global competition
- The merger will reduce the cost of banking operation
- The burden on the Central Government to re-capitalize the public sector banks like mutual fund, insurance, SIP etc.
- Better NPA and Risk Management
- Improve the professional standards
- Enhanced 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
- Provides better efficiency ratio for business operations as well as banking operation which is beneficial for the economy
- A larger bank can manage its short and long term liquidity better. There will not be any need for overnight borrowings in call money market and from RBI under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF)
- Bank Staff will be under single umbrella in regard to their service conditions and wages instead of facing disparities.
The Banking sector has reported a national loss of 25,000/- crore rupees because of the 10 defaulter companies failing to pay loans they had borrowed from the financial institutions. Around 1 lakh 44 thousand 93 crore rupees has been reported as bad loans in the financial year 2017-18. The PSBs has suffered a loss of 87,000 crores rupees. In addition, to make the banks highly competitive worldwide, Bank-mergers is a must.