Every business house is kept functioning and attempting new avenues by the never-ending quest for growth. This ambition for development has resulted in a surge in merger and acquisition activity across the board, and Indian banks have not been immune to this trend (M&A). A merger is a process of merging two or more banks in order to boost efficiency and save operational costs. With a merger, the combined bank’s lending capacity grows, and the number of non-performing assets (NPAs) decreases. Besides the objective, business growth, profitability, and organizational structure have also become factors in recent mergers and acquisitions. In 2017, there were 27 public sector banks. The government of India announced in 2018 that Vijaya Bank and Dena Bank would merge to form Bank of Baroda, the country’s third-largest lender. In August 2019, the government declared four major mergers of public sector banks, reducing their overall number to 12 from 27 in the largest banking consolidation effort in history.

The following are the specifics of the public-sector bank megamerger:

• United Bank and Oriental Bank of Commerce would merge with Punjab National Bank (dubbed Anchor Bank), creating the country’s second-largest public sector bank with a market capitalization of 18 lakh crore.
• Canara Bank (referred to as Anchor Bank) and Syndicate Bank will merge. With a combined business of Rs 15.2 lakh crore, Canara Bank will be the fourth largest bank in India.
• Indian Bank (Anchor bank) and Allahabad Bank will amalgamate. Indian Bank would be the seventh-largest state institution after absorbing Allahabad Bank, with a business size of Rs 8.08 lakh crore.
• Union Bank of India (Anchor bank) will consolidate with Andhra Bank and Corporation Bank. With a total business of Rs 14.59 lakh crore, the combined Union Bank of India will be the sixth-largest bank in India.

Following the merger, the combined bank’s branches are recognized by the name of the anchor bank (leading bank into which other banks have merged). The announcement of these mega-mergers was done to boost the economy and create huge next-generation banks. Furthermore, these big banks will have the capacity to increase credit along with a bigger risk appetite.

Consequently, the mega merger will change certain elements for the consumers. Hence, NRIs and other individuals as customers and borrowers must be aware of the following changes due to the mega-mergers:

• It is possible that the IFSC and MICR codes will change. Customers may need to make modifications to their account’s auto credit and debit facilities.
• The new details must be updated with the applicable entities for financial operations such as tax payment, insurance payment, and loan repayment (EMIs) from the account.
• Customers of the merging banks must keep their addresses and other personal information up to date as needed by the banks.
• For existing RD/FDs, the present rate of interest will be maintained until maturity. Renewal of FDs will be done using the combined bank’s most recent term deposit rates.
• Your existing credit card will be valid until the expiration date shown on the card, after which it will be renewed. You can also apply for a new credit card from the merged bank.

Legalities attached to mega-mergers

Besides economic aspect of the mega-mergers, the nature of the transaction is also governed by certain legal provisions. The statute governing the banking companies in India is the Banking Regulation Act of 1949, and the act provides with section 44A concerning the merger between banking companies. The provision necessitates that a scheme of such amalgamation must be adopted by a two-thirds majority of shareholders of each amalgamating company present in person or by proxy at the respective general meeting summoned for the purpose of considering the scheme. However, the non-absolute applicability of the Act’s provisions to government-owned and state-run banks should be underlined here.

Furthermore, the nature of transaction might also attract the provisions concerned with the market competition. Competition Act, 2002 sets out provision to eradicate the appreciable adverse effect on competition (AAEC). With this object, the act sets out the standard (combination rule) for transaction to segregate between valid and anti-competitive transaction. However, section 6(4), an exception, stipulates that a bank’s share subscription or financing facility, as well as any acquisition undertaken pursuant to a loan or investment agreement, are exempt from the rigidities of the combination rule; nonetheless, such a combination must be disclosed to the CCI within seven days.

Owing to the exception and substantial state ownership of banks, mergers in the public banking sectors may create concerns related to the entry of players in the sector. Hence, the rules and regulations need to be developed to cancel out this effect of anti-competitiveness in the banking sector. In this consideration, the government has taken a proactive approach by establishing the Financial Sector Legislative Reforms Commission (“FSLRC”) to harmonize financial sector legislation and analyze bank mergers, it is important to note that the legislature is working on an integrated modern banking law to provide clarity and address issues that arise from competition and other factors.