What is Merger and Amalgamation?
•A merger occurs when two or more
companies/entities combine to form either a new
company or an existing company that absorbs the
other target companies.
• For example, the consolidation of two entities, Tata
Steel and the UK-based Corus Group, with the
resulting entity being Tata Steel.
•Amalgamation is a type of merger in which two or
more businesses combine to form a completely new
• For example, combination of two entities Mittal
Steel and Arcelor have formed a new entity,
How is Merger and Amalgamation initiated?
• Any two public sector banking entities may initiate
merger talks, but the merger scheme must be
finalised by the government in consultation with
the central bank and voted on in Parliament.
• The scheme may be modified or rejected by
Parliament. Parliamentary approval is also
required in the case of a merger between a public
sector bank and a private bank.
• Most bank mergers have resulted from the central
bank's efforts to safeguard the financial system
and depositors' funds.
• Mergers anticipate that weak banks will sell
assets, cut costs, and close loss-making branches.
Banking merger history
Renamed from bank of
State bank Of India
Post independence in
Imperial Bank Of India
● The Banking Regulation Act of 1949 specifies the procedures for bank consolidation.
● The idea of bank mergers has been floating around since 1998, when the M. Narasimham
Committee recommended to the government that banks be merged into a three-tiered
1. Three large banks with an international presence at top
2. Eight to ten national banks
3. Large number of regional and local banks.
● In 2014, the PJ Nayak Committee recommended that the government privatise or merge
● The government approved the "merger" of SBI's five associate banks and Bharatiya
Mahila Bank (BMB) with SBI in 2017.
● In 2017, the government formed an Alternative Mechanism Panel, led by the Minister of
Finance and Corporate Affairs, to investigate merger proposals of public sector banks.
● The period is called pre nationalization period because in 1969 the government
nationalized 14 private banks.
● As many as 46 mergers took place mostly of private banks to revive the poorly
Merger and nationalisation during 1961-69
The period from 1969-1991
• The period was called post nationalization period .It saw 6 private banks being
nationalised in 1980.
• In this period 13 banks got merged. Mostly these were private public bank mergers.
PSB Merger timeline in India
Punjab national bank
Oriental Bank of Commerce
United Bank of India
Union Bank of India
State Bank of Bikaner and Jaipur
State Bank of Hyderabad
State Bank of Mysore
State Bank of Patiala
State Bank of Travencore
Bharatiya Mahila Bank
Vijaya Bank Canara Bank
Business implications in terms of money
PCR: provision covering ratio
Common Equity Tier 1 capital (CET1) is the highest quality of regulatory capital, as it absorbs losses immediately
when they occur.
Capital to Risk (Weighted) Assets Ratio (CRAR). In other words, it is the ratio of a bank's capital to its risk-weighted
assets and current liabilities.
Advantages of bank mergers
Uniform wages Minimisation of risk
Disadvantages of bank mergers
Having bad loans,
bad books and
All the weaknesses
of non performing
Lack of options
Bigger bank is in
Major acquisitions have
because they leave little
scope for trial and error
and are difficult to
the probability of a
rejected approval is
very low but the
the failure are
leave and result
in poor employee
risks involved are much more than
financial in scope. A failed merger
can disrupt work processes,
diminish customer confidence,
damage the company’s reputation,