What is a bank merger? Why do banks merge? Pros and cons of a bank merger? What is the reason behind bank mergers in India? Let's start by answering these 4 basic questions first before proceeding into the main topic of this article which intends to cover all major bank mergers in India after 1990.

1. What is a Bank Merger?

   A Bank merger is a situation in which 2 banks pool their assets and liabilities to become and perform as a single bank in the coming time.
    

2. Why do bank mergers happen?

   Bank mergers happen to achieve combined synergy i.e. they can diversify their growth and expansion in the market with the increase in efficiency of performance as well as the increase in value of the company due to the combined worth and value of the merging parties.
    

3. Pros & Cons of a bank merger?

   Pros:
   
   • Increase in market value
   • Reduces the cost of operations
   • Avoids replication
   • Expands the business
   • More access to the market
   • Saves some businesses from going bankrupt
   Cons
   
   • Raises the prices of certain services
   • Creates a gap/miscommunication
   • Prevents economies of scale
   • Creates unemployment
      

4. What is the reason behind bank mergers in India?

   In India, bank mergers began in the 1960s as a way to bail out weaker banks while also protecting client interests. That, since 1990, there has been a yearning to develop an Indian bank that can compete with global giants in the post-liberalization age. The government approved the merger of five affiliate banks to form one of the major global banks with SBI in February 2017. Later in March, the Cabinet approved the merger of BMB also.
    

Bank Mergers In India After 1990

From the year 1990 to 1999

Name of the Bank	Merged with	Year of Merger
Indian Bank	Bank of Thanjavur Ltd.	1990
Central Bank Of India	Purbanchal Bank Ltd.	1990
Bank Of India	Parur Central Bank Ltd.	1990
Punjab National Bank	New Bank of India	1993
Bank of India	Bank of Karad Ltd.	1994
State Bank of India	Kashinath State Bank Ltd	1995
Oriental Bank of Commerce	Punjab Co-operative Bank Ltd.	1996
Union Bank of India	Sikkim Bank Ltd.	1999
Bank of Baroda	Bareilly Corporation Bank Ltd.	1999

From the year 2010 to 2020

Name of the Bank	Merged With	Year of the merger
HDFC Bank Ltd.	Times Bank Ltd.	2000
ICICI Bank Ltd	Bank of Madura Ltd	2000
Bank of Baroda	Benares State Bank Ltd.	2002
ICICI Bank	ICICI Ltd.	2002
Punjab National Bank	Nedungadi Bank Ltd.	2003
Oriental Bank of Commerce	Global Trust Bank	2004
Bank of Punjab(POB)	Centurion Bank	2005
IDBI Ltd	United Western Bank	2006
Indian Overseas Bank	Bharat Overseas Bank	2007
HDFC Bank	Centurion Bank of Punjab	2008
ICICI Bank	Bank of Rajasthan Ltd.	2010

Above were the lists of bank mergers that happened in the post-liberalization era in India i.e. after the 90s decade. Now let us look at some of the major bank mergers out of this list that grabbed public attention and were the centerpieces of the banking revolution in India.

1. HDFC + Times Bank:
   It is India's one of the most legendary bank mergers of all time and the first-ever mega-merger of Indian Banks. HDFC Bank's capital adequacy was 10.3 percent post-merger, rising to 11.1 percent after the proposed preferential offer to maintain distinct classes of investors' current ownership. The merger increased the customer base of HDFC Bank by 2,00,000 taking the figure to 6,50,000. The branch network increased from 68 to 107 throughout India. HDFC Bank's total deposits whooped to be around Rs. 6,900 crore and the size of the balance sheet was over Rs.9, 000 crores.
    
2. ICICI Bank + ICICI LTD:
   The merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank was approved by the Boards of Directors of ICICI and ICICI Bank in October 2001. In January 2002, ICICI and ICICI Bank shareholders authorized the merger, as did the High Court of Gujarat in Ahmedabad in March 2002, the High Court of Judicature in Mumbai, and the Reserve Bank of India in April 2002. The ICICI group's financing and banking businesses, both wholesale and retail, were combined as a result of the merger. The merger created a strong entity that redefined banking in the age of liberalization and globalization.

Mega Bank Mergers-2020

Ms. Nirmala Sitharaman, India's Finance Minister, announced the merger of the country's main public sector banks in August 2019 with a vision to restructure and reorganize the Banking system in the country. As of today, India has 12 PSBs(Public Sector Banks). In 2017, there were 27 PSBs with fragmented lending capacity; after consolidation, there will be 12 PSBs.
The government of today was following the recommendations made by M Narasimham Committee in 1991.

The committee had proposed

• That the Indian banking system evolve as follows: Three or four large banks (including the State Bank of India) which could become international.
• Eight to 10 national banks with a network of branches throughout the country.
• Local banks whose operations would be generally confined to a specific region. Rural banks (including RRBs) for rural and agricultural activities.

PUNJAB NATIONAL BANK + Oriental Bank of Commerce + United Bank together is the 2nd largest PSB in India with a business size of over Rs 18 Lakh Crore and is the 2nd largest network with more 11.5K branches all over India. A high Current And Savings Account (CASA) ratio and a large lending capacity would result from the merger. In all three banks, the same Core Banking System (CBS), Finacle, would allow for speedy settlement of gains.

1. Canara Bank + Syndicate Bank will be the 4th largest PSB producing a whooping business of 15.2 Lakh Crore and the third-largest network with 10.5K branches all over India. Synergies, culture, and a single CBS platform will allow for immediate operational gains and increased lending capacity.
    
2. Union Bank+ Andhra Bank + Corporation Banks would be the 5th Largest PSB generating a business of14.6 lakhs crore with 9.5K branches all over India making it the 4th Largest network. Strong scale benefits all three, with revenue increasing by 2 to 4.5 times that of a single bank.
    
3. Indian Bank + Allahabad Bank with a business of Rs 8.08 lakh crore, the amalgamated organization will be the seventh-largest PSB in the country. With the firm doubling, there are significant scale benefits for both. In a consolidated bank, high CASA and lending capability are merged.

Conclusion
As is typical of most such reforms, these proposals were implemented gradually. Some local banks came up with the notion, but it didn't take off. For small finance banks, the notion of focusing on a certain region has been abandoned. The Narasimha Committee had asked the government to limit the number of public sector banks and make room for private sector banks in the first two recommendations.

The new private sector banks also contributed to the hold-up. Some of the 1990s' newcomers went out of business quickly, and a handful was also involved in fraud. This necessitated the cleaning up of newly established private sector banks. The surviving new banks have mostly remained stable over time, steadily displacing public sector banks. With public sector banks performing poorly recently, it was probably time to revisit the Narasimha Committee's recommendations.

References

1. https://www.bloombergquint.com/opinion/the-origins-of-the-great-indian-bank-merger
2. www.Citibank.com
3. https://affairscloud.com/list-mergers-acquisitions-bank-india/
4. Kaur, Navleen. (2020). Case Study: Mega Bank Mergers in India. 10.13140/RG.2.2.35592.65281. This short case discusses megabank mergers in India.
   https://economictimes.indiatimes.com/industry/banking/finance/banking/nextgen-psbs-which-bank-merged-with-whom-and-whats-the-impact/articleshow/70910213.cms?from=mdr