In the first round of mergers, smaller and weaker banks merged with larger banks. However, now, smaller banks are gradually becoming stronger. For example, smaller banks like Bank of Maharashtra have grown by nearly 200% in the last five years. This raises concerns that these banks may be merged with banks with slower growth.
Bank merger: There’s a growing buzz about another major round of mergers among public sector banks (PSBs). The government has also recently hinted at this. Our partner, CNBC-TV18, spoke with several former bankers about this potential merger. These include former RBI Deputy Governor and former CMD of Bank of Baroda S.S. Mundra, former SBI Chairman Dinesh Kumar Khara, former Indian Bank MD Padmaja Chunduru, and former PNB MD Sunil Mehta.
All four veterans believe that the next merger should not simply be a way to increase bank size, but should also focus on work culture, capital, and real synergies.
In the first round of mergers, smaller and weaker banks merged with larger banks. This didn’t cause much resentment among shareholders. However, now, smaller banks are gradually strengthening. For example, small banks like Bank of Maharashtra have grown by nearly 200% in the last five years. In such a situation, there is a concern that these banks may be merged with such banks whose growth is slower than theirs.
SS Mundra was asked if he thought the government would take these factors into account when planning future bank mergers. Mundra replied that the government is still the majority shareholder in the banks being discussed. Therefore, it will not ignore the interests of shareholders.
He said, “Previous mergers have been successful. There were some short-term challenges, but they yielded long-term benefits. Technology and other integrations have been accomplished, but from what I understand and hear from colleagues, work culture alignment remains the biggest challenge. And when cultures don’t fully match, banks fail to reach their full potential.”
Mundra also reminded that the combined market cap of the country’s top five private banks still exceeds the combined market cap of all public sector banks, highlighting the need for further improvement.
Will large banks merge?
The government wants to bring Indian banks on par with the world’s largest global banks. Dinesh Khara stated that the world’s largest banks are worth $7 trillion (China) and $4 trillion (JPMorgan), so simply increasing size won’t achieve anything.
Khara said, “Mergers should occur where synergies are found and growth levers are strong. Only when all these elements—capital, technology, skills, and risk management—come together will a merger be successful.” He says banks with higher capital can be combined with banks with lower capital to create better risk-taking capacity.
Will SBI be excluded from future mergers?
Regarding this, Khara said it would be wrong to consider SBI “legally separate.” He added, “The successful merger of Bharatiya Mahila Bank and SBI’s associate banks last year is an example of this. The question isn’t who can be merged, but what will be achieved through the merger.”
Should the merger be geographical or cultural?
Sunil Mehta, former MD of Punjab National Bank, says that mergers aren’t just about aligning balance sheets. The goal should be to create a financial structure of national importance.
According to him, “In the past, mergers were based on technology. But now, we need to move beyond that and focus on increasing capital, profitability, efficiency, and strategic value.”
Do differences in work culture impact mergers?
Padmaja Chunduru, former MD of Indian Bank, who led the merger of Indian Bank and Allahabad Bank, says, “Yes, work culture differences are a challenge, but with proper communication, transparency, and a ‘merger of equals’ approach, they can be easily managed. Respect for people and honest communication are the keys to success.”
Should the Bank Nationalization Act be abolished?
According to many experts, if all PSU banks are brought under the Companies Act, boards will be more independent, and merger decisions will be based on commercial considerations. Mundra said: “This issue has been raised before. The government is also considering this. The government can retain control without bringing in up to 49% private stake, so reforms are possible.”
Mundra concluded, “Scale isn’t everything. Technology, customer service, innovation, and branch network will be the bank’s true strengths. The merger design will only succeed if regulations are simultaneously strengthened.”
