The much-awaited PSB consolidation is here - it will merge 10 PSB units into four - Oriental Bank of Commerce (OBC) and the United Bank of India (UBI) will merge into Punjab National Bank to make it the second-largest bank after SBI. Mumbai-headquartered Union Bank will merge with Hyderabad-headquartered Andhra Bank and Corporation Bank. Bengaluru-headquartered Canara Bank will merge with Syndicate Bank, and Indian Bank will acquire Kolkata-headquartered Allahabad Bank.

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Trading on stocks impactedPixabay

With the PSB merger now into effect, Allahabad Bank will now operate in branches of Indian Bank, branches of Union Bank of India will handle Andhra Bank and Corporation Bank accounts, Oriental Bank of Commerce and United Bank will function as branches of PNB and Syndicate Bank will operate as Canara Bank branches. Depositors of these branches will be moved to the new amalgamated entity soon.

The finance minister has announced a slew of reforms with these mega-mergers coming into effect - to include the appointment of chief risk officers with market-linked compensation, a big positive step for state-run banks. Until now, risk management was a little focused area in the workings of PSBs which resulted in heavy lending, impact on cash flows and financial stability of the government-run financial lending institutions.

After decades of nationalisation, too many state-run banks are working at the mercy of government aid makes little sense, since they score relatively less in terms of efficiency when pitted against foreign rivals and private-lending entities. So the merger was a need of the hour in the very context, but does it make the banks any stronger than before?

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PSU banks have been seeing muted growth year-on-year with the Covid-19 outbreak impacting revenue growth further. Growth of NBFCs has seen a sharp decline in the recent past with increasing risk averseness and further tightness in the funding markets. Today, the Nifty PSU Bank index was trading at 1,299.55 level, down by 1.9 percent. The index further hit a low of 1,279.30 in the morning deals. Also, the benchmark Nifty50 index slipped by over 2 percent.

In terms of individual banking stocks, SBI declined by 4.9 percent to Rs 187.05, on the NSE index, while PNB slipped by 5.7 percent, and Bank of Baroda was down by 2.8 percent, a news report stated.

However, Indian Bank noted a decent increase by 7.6 percent to Rs 46.6, followed by Central Bank at 2.4 percent, Union Bank of India at 2 percent, and Canara Bank at 1.6 percent on the NSE Index.

Post-merger impact on the PSBs coping with the coronavirus blow

Since most of these banks have relatively high NPAs (non-performing assets), would merger make NPAs disappear or will it be like bundling all small problems to make it a big one? Further, the capital required from the government especially in these crisis times of today, will make it increasingly difficult for the running of these mega merged entities.

Will there be real synergy in workings post-merger, as most of these banks are regionally-focused reflecting in their workplace culture and methodologies used. While technology synergy has been made possible by the government by clubbing banks into the same technology platform, how about the synergy at work? Would it result in increasing levels of attrition at PSBs owing to employee dissatisfaction, seeking for greener pastures elsewhere, perhaps working for private-sector banks?

Falling rupee and impact on bank preparedness in fight against Covid-19
Falling rupee and impact on bank preparedness in fight against Covid-19Pixabay

Has the government taken steps to ensure that the anchor banks who will be leading the mergers are prepared to lead the acquired entities from the front? As in the case of PNB, with a history of poor governance and faulty risk management practices, is it right to have given the charge of handholding and managing two other banks?

Since state-run banks have had strong trade unions commanding influential positions for decades, playing an active role in the policy formulation of these public sector entities. With employee unions opposing the merger of PSUs and threatening strike for quite some time, have these unions been taken into confidence prior to the merger coming into effect?

Further, the PJ Nayak panel since 2014, has been suggesting privatisation of PSBs to free the government from management issues and risks handling the banks. What happened to the government's commitment to free itself out of the banking business?

While the economy is still in a state of shock reeling from the outbreak of the coronavirus pandemic, isn't it common sense that the merger move implemented now will add extra burden on the operations of the anchor banks, coping with the crisis? The time demands of banks to focus on the lending activities for productive purposes to revive the economy, while ensuring asset quality. Should the government have postponed the mega-merger of PSBs? Worth an afterthought!