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Government to stick to April 1 deadline for amalgamation of 10 PSBs

Our Bureau New Delhi | Updated on February 26, 2020 Published on February 26, 2020

The Modi Government intends to stick to the April 1 deadline for amalgamation of 10 public sector banks (PSBs) into four units. Meanwhile, the Union Cabinet is likely to consider next week a formal proposal for the amalgamation.

The government proposes amalgamation of Oriental Bank of Commerce and United Bank of India 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. The boards of all the concerned banks have already given ‘in-principal’ approval to this process.

Amalgamation is a process where one or more entities are subsumed into another entity, giving birth to a new institution. Unlike merger, no share purchase is undertaken by the dominant institution, and it does not make any payment either. However, there is a ‘share-swap’ process where shareholders of various entities being subsumed are allotted certain number of shares in the new entity.

“The government has the flexibility to compress the timeline to finalise the scheme of amalgamation,” a senior government official said here.

This response has come at a time when doubts have been raised about the time needed to complete the process. Post approval from the Cabinet and then from the boards, the matter will go the market regulator Securities and Exchange Board of India (SEBI), as all the entities to be amalgamated are listed on stock exchanges. Normally, it takes 30-40 days for the approval to be granted. With just one month left now, there were concerns.

The Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980 provide that the Central Government, in consultation with the Reserve Bank of India (RBI), may make a scheme, inter alia, for the amalgamation of any nationalised bank with any other nationalised bank. Various committees, including Narasimhan Committee (1998) constituted by the RBI, Leeladhar Committee (2008) chaired by RBI Deputy Governor, and Nayak Committee (2014) constituted by the RBI, have recommended consolidation of public sector banks (PSBs) given the underlying benefits/synergies.

Taking note of these recommendations and the potential benefits of consolidation for banks as well as the public through enhanced access to banking services, with a view to facilitate consolidation among PSBs to create strong and competitive banks, serving as catalysts for growth, and with improved risk profile of the bank, the government has given approval to the proposal to amalgamate the PSBs through an Alternative Mechanism (AM).

The AM, after consulting the RBI, gave its approval for the respective Boards of 10 PSBs to consider the amalgamation into four amalgamated entities. The boards of the banks concerned considered the amalgamation and approved the same in-principle. Since, the entire process talks about bringing down the number of public sector banks, there have been many grievances, mainly from employees unions.

Following discussions between the Indian Banks’ Association and employees’ representatives on various demands raised by employee organisations, the government has requested the amalgamating banks to form joint committees of the Executive Directors of the banks concerned to consider and make appropriate recommendations to the management and/or bank’s Board on matters arising from or related to the proposed amalgamation. The government has repeatedly assured that not a single employee will be retrenched.

Published on February 26, 2020
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