Bank Mergers in India: History, Benefits & Major Consolidations

Introduction: From 27 to 12

In 2017, India had 27 public sector banks (PSBs). Today, there are 12. What happened to the other 15? They merged.

When your neighborhood Indian Bank branch suddenly became Bank of Baroda, or your State Bank of Patiala account became SBI, you witnessed India’s biggest banking consolidation. Here’s the story of bank mergers in India—why they happen, how they affect you, and what the future holds.

What is a Bank Merger?

Definition

A bank merger is the combination of two or more banks into a single entity. The acquiring bank absorbs the acquired bank(s), which cease to exist as separate entities.

Types

1. Amalgamation

• One bank absorbs another
• Absorbed bank loses identity
• Most common in India

2. Merger

• Two banks combine
• May form new entity
• Rare in India

3. Acquisition

• Bank buys another
• Acquired bank may or may not continue
• Private sector common

Major Bank Mergers in India

Timeline of Consolidation

SBI Mega Merger (2017)

Merged Entities:

• State Bank of Bikaner & Jaipur
• State Bank of Hyderabad
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Travancore
• Bharatiya Mahila Bank (BMB)

Result:

• 5 Associate Banks + BMB merged into SBI
• SBI became world’s largest bank by branches
• 22,000+ branches
• ₹45+ lakh crore assets

Impact:

• Single SBI identity nationwide
• Unified customer service
• Operational synergies

Bank of Baroda Mega Merger (2019)

Merged:

• Dena Bank (weak bank)
• Vijaya Bank (healthy bank)
• Bank of Baroda (anchor)

Logic:

• Two weak + one strong = viable entity
• Dena Bank NPA issues addressed
• Vijaya Bank’s health utilized

Result:

• India’s third-largest PSB
• 9,000+ branches
• Strong presence in Gujarat and South

2020 Mega Consolidation (4 Mergers)

April 1, 2020: Four mergers effective simultaneously

Merger 1: PNB Group

• Oriental Bank of Commerce + United Bank of India → Punjab National Bank
• India’s second-largest PSB
• Strong North and East presence

Merger 2: Union Bank Group

• Andhra Bank + Corporation Bank → Union Bank of India
• Strong South and West presence

Merger 3: Canara Bank Group

• Syndicate Bank → Canara Bank
• Dominant in Karnataka

Merger 4: Indian Bank Group

• Allahabad Bank → Indian Bank
• Strong in South and North

Current PSB Landscape

From 27 to 12 Banks

Current 12 Public Sector Banks:

Market Share Post-Consolidation

Why Do Banks Merge?

1. Economies of Scale

Before Merger:

• 10 small banks × IT investment = 10× cost
• Duplicate head offices
• Overlapping branches

After Merger:

• Single IT infrastructure
• One head office
• Rationalized branch network
• Lower per-unit costs

2. Stronger Balance Sheet

3. Rescue Weak Banks

Problem Bank Scenario:

• High NPAs
• Low capital
• Needs government bailout

Merger Solution:

• Merge with stronger bank
• Spread bad assets across larger base
• Avoid individual bank failure

4. Global Competitiveness

Before: Many small Indian banks, none globally significant After: Large banks that can compete internationally

5. Regulatory Push

RBI and Government objectives:

• Fewer banks to supervise
• Stronger banking system
• Better governance
• Professional management

Benefits of Bank Mergers

For Banking System

✅ Stronger Banks: Better capitalized, more resilient ✅ Efficient Operations: Reduced duplication ✅ Better Risk Management: Diversified portfolios ✅ Improved Technology: Combined investments ✅ Reduced Government Burden: Less recapitalization needed

For Customers

For Employees

Potential Benefits:

• Career opportunities in larger organization
• Better training and development
• Modern technology exposure

Concerns:

• Job security fears
• Transfer anxieties
• Culture adjustment

Challenges of Bank Mergers

1. Technology Integration

Challenge:

• Different core banking systems
• Data migration complexity
• Service disruption risk

Example: Bank A uses Finacle, Bank B uses FLEXCUBE. Merging databases and processes takes 1-2 years.

2. HR and Culture

Issues:

• Different work cultures
• Seniority disputes
• Transfer policies
• Union resistance

Example: Associate bank employees had different seniority lists. Integration created conflicts.

3. Branch Rationalization

Dilemma:

• Overlapping branches need closure
• Staff redeployment needed
• Customer inconvenience possible

4. NPA Combination

Risk:

• Merging weak bank brings its NPAs
• Can temporarily worsen metrics
• Requires provisions

5. Customer Transition

Challenges:

• New account numbers/IFSC
• Cheque book changes
• Digital banking re-registration
• Communication gaps

Impact on Customers

What Changes?

What Remains Same?

• Account balance
• Fixed deposits (continue with terms)
• Loans (continue with terms)
• Interest rates (as per contract)
• Insurance coverage (DICGC)

Customer Action Required

1. Update Cheques: Use new cheque books
2. Update IFSC: In recurring payments, mandates
3. Update Documents: With new bank name
4. Re-register: For digital services if needed
5. Visit Branch: For any clarifications

Private Sector Bank Mergers

Notable Mergers

HDFC Twins Merger (2024)

Largest Private Sector Merger:

• HDFC Limited (housing finance)
• HDFC Bank (banking)

Merger Rationale:

• Cross-selling opportunities
• Lower cost of funds for HDFC Ltd
• Larger balance sheet for HDFC Bank
• Regulatory changes (bank holding)

Result:

• India’s largest private bank
• Assets: ₹25+ lakh crore
• Market cap: ₹12+ lakh crore

Failed Banks and Forced Mergers

Yes Bank Crisis (2020):

• Near-collapse due to NPAs
• RBI intervention
• Consortium of banks infused capital
• Not a merger, but consortium rescue

Lakshmi Vilas Bank (2020):

• Persistent losses
• RBI forced merger with DBS India
• Customers automatically became DBS customers

Merger Process

Steps in Bank Merger

1. Government/RBI Decision
       ↓
2. In-Principle Approval
       ↓
3. Due Diligence
       ↓
4. Share Swap Ratio Decided
       ↓
5. Scheme of Amalgamation Drafted
       ↓
6. Regulatory Approvals
       ↓
7. Employee Consultation
       ↓
8. Technology Integration Planning
       ↓
9. Appointed Date (Merger Effective)
       ↓
10. Post-Merger Integration

Legal Framework

• Section 44A of Banking Regulation Act: Voluntary amalgamation
• Section 45 of Banking Regulation Act: Compulsory amalgamation (RBI directed)
• Companies Act provisions: For procedural aspects

Future of Bank Mergers

Remaining Smaller PSBs

Potential Candidates:

• UCO Bank
• Central Bank of India
• Indian Overseas Bank
• Bank of Maharashtra
• Punjab & Sind Bank

Speculation:

• Further consolidation possible
• 4-5 large PSBs ultimate target
• Timeline uncertain

Privatization Path

Alternative to Merger:

• Government divesting stake
• NITI Aayog recommendations
• Political and union opposition

Private Sector Consolidation

Expected:

• Small private banks may merge
• Large banks may acquire
• Distressed banks absorbed

Lessons from Global Bank Mergers

Success Factors

Common Mistakes

❌ Underestimating technology challenges ❌ Ignoring cultural differences ❌ Poor customer communication ❌ Leadership conflicts ❌ Rushing without planning

Key Takeaways

1. 27 to 12 PSBs – Massive consolidation completed
2. Scale benefits – Larger banks more efficient
3. Weak + Strong model – Used for rescue mergers
4. Integration takes time – Technology and culture challenges
5. Customer transition – IFSC, cheques need updates
6. More mergers possible – Smaller PSBs may consolidate
7. HDFC twins merger – Biggest private sector transformation

Disclaimer

This article is for educational purposes only. Bank merger details and statistics may have changed since writing. Verify current information with official bank announcements. This is not financial advice.

Frequently Asked Questions

Q: Will my account be affected after bank merger? A: Your account continues seamlessly. You may need to update IFSC code in external payments and get new cheque book.

Q: What happens to my fixed deposit in merged bank? A: FD continues with same terms. Interest rate and maturity date remain unchanged.

Q: Will my loan terms change after merger? A: Generally, loan terms continue as agreed. Any changes require consent.

Q: Do I get new debit card after merger? A: Usually yes, new card with merged bank branding. Old card may work during transition.

Q: Is my money safe in a merged bank? A: Yes. DICGC coverage continues. Larger banks are generally more stable.

Q: What happens to employees of merged bank? A: They become employees of merged entity. Government-assured no job losses in PSB mergers.

Bank mergers reshape the banking landscape, but for you as a customer, it means transitioning to a potentially stronger, larger institution. Stay informed about changes, update your records, and continue banking as usual. The fundamental safety of your deposits remains intact—now backed by an even stronger bank.