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Consider the following statements regarding recent mergers of Public Sector Banks:
1. Merger of Punjab National Bank with Oriental Bank of Commerce and United bank of India will make it the largest lender in the country.
2. Merger of banks will provide benefits of economies of scale.
Which of the above statements is/are correct?
1. Merger of Punjab National Bank with Oriental Bank of Commerce and United bank of India will make it the largest lender in the country.
2. Merger of banks will provide benefits of economies of scale.
Which of the above statements is/are correct?
- a)1 only
- b)2 only
- c)Both 1and 2
- d)Neither 1 nor 2
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
Consider the following statements regarding recent mergers of Public S...
• Statement 1 is incorrect: Merger of Punjab National Bank with Oriental Bank of Commerce and United bank of India will make it the second-largest lender in the country after SBI
Mergers of Banks
• Recently the Finance Minister announced that 10 public sector banks are to be merged into four.
• Punjab National Bank, Oriental Bank of Commerce and United Bank of India to merge to form the country’s secondlargest lender (anchor bank- PNB)
• Canara Bank and Syndicate Bank to amalgamate (anchor bank- Canara)
• Union Bank of India to acquire Andhra Bank and Corporation Bank (anchor bank- Union Bank of India)
• Indian Bank to merge with Allahabad Bank (anchor bank- Indian Bank)
• In 2017, the State Bank of India absorbed five of its associates (State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Mysore and State Bank of Patiala.) and the Bharatiya Mahila Bank.
• Last year, the government had approved the merger of Vijaya Bank and Dena Bank with Bank of Baroda (BoB) that become effective from April 1, 2019.
• India needs fewer, mega banks which are strong, because in every sense, from borrowing rates to optimum utilization, the economies of scale as far as banking sector are concerned are of great help.
• Narasimham Committee (1991&1998), Verma Committee (1996 ), Khan Committee (1997) and P.J. Nayak Committee (2013) have all recommended merger of PSB’s for a strong banking system in India.
Mergers of Banks
• Recently the Finance Minister announced that 10 public sector banks are to be merged into four.
• Punjab National Bank, Oriental Bank of Commerce and United Bank of India to merge to form the country’s secondlargest lender (anchor bank- PNB)
• Canara Bank and Syndicate Bank to amalgamate (anchor bank- Canara)
• Union Bank of India to acquire Andhra Bank and Corporation Bank (anchor bank- Union Bank of India)
• Indian Bank to merge with Allahabad Bank (anchor bank- Indian Bank)
• In 2017, the State Bank of India absorbed five of its associates (State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Mysore and State Bank of Patiala.) and the Bharatiya Mahila Bank.
• Last year, the government had approved the merger of Vijaya Bank and Dena Bank with Bank of Baroda (BoB) that become effective from April 1, 2019.
• India needs fewer, mega banks which are strong, because in every sense, from borrowing rates to optimum utilization, the economies of scale as far as banking sector are concerned are of great help.
• Narasimham Committee (1991&1998), Verma Committee (1996 ), Khan Committee (1997) and P.J. Nayak Committee (2013) have all recommended merger of PSB’s for a strong banking system in India.
Most Upvoted Answer
Consider the following statements regarding recent mergers of Public S...
Statement 1: Merger of Punjab National Bank with Oriental Bank of Commerce and United bank of India will make it the largest lender in the country.
Explanation:
The merger of Punjab National Bank (PNB) with Oriental Bank of Commerce (OBC) and United Bank of India (UBI) will create the second-largest public sector bank in India. The new entity formed by this merger will have a combined business of around Rs. 18 lakh crore ($252 billion) and will have a strong presence with over 11,000 branches across the country.
However, the merger will not make it the largest lender in the country. State Bank of India (SBI) is currently the largest lender in India. Hence, statement 1 is incorrect.
Statement 2: Merger of banks will provide benefits of economies of scale.
Explanation:
Economies of scale refer to the cost advantages that a business can achieve when it increases its scale of production. In the context of bank mergers, combining the operations of multiple banks can result in several benefits of economies of scale, such as:
1. Operational Efficiency: Merging banks can streamline their operations and eliminate duplication, resulting in cost savings. This can be achieved through the consolidation of branches, reduction in administrative overheads, and optimization of resources.
2. Enhanced Bargaining Power: A merged entity will have a larger customer base and a stronger market presence. This can give them better bargaining power with suppliers, leading to cost savings in terms of procurement of goods and services.
3. Technological Advancements: Merging banks can leverage their combined resources to invest in advanced technologies and infrastructure. This can lead to improved efficiency, faster service delivery, and reduced costs in the long run.
4. Risk Diversification: Merging banks can diversify their risk by combining their loan portfolios and customer bases. This can help in reducing the overall risk exposure and enhance the stability of the merged entity.
Overall, the merger of banks can provide benefits of economies of scale, leading to cost savings and improved efficiency. Hence, statement 2 is correct.
Conclusion:
Out of the given statements, only statement 2 is correct. The merger of Punjab National Bank with Oriental Bank of Commerce and United Bank of India will not make it the largest lender in the country, but it will create the second-largest public sector bank.
Explanation:
The merger of Punjab National Bank (PNB) with Oriental Bank of Commerce (OBC) and United Bank of India (UBI) will create the second-largest public sector bank in India. The new entity formed by this merger will have a combined business of around Rs. 18 lakh crore ($252 billion) and will have a strong presence with over 11,000 branches across the country.
However, the merger will not make it the largest lender in the country. State Bank of India (SBI) is currently the largest lender in India. Hence, statement 1 is incorrect.
Statement 2: Merger of banks will provide benefits of economies of scale.
Explanation:
Economies of scale refer to the cost advantages that a business can achieve when it increases its scale of production. In the context of bank mergers, combining the operations of multiple banks can result in several benefits of economies of scale, such as:
1. Operational Efficiency: Merging banks can streamline their operations and eliminate duplication, resulting in cost savings. This can be achieved through the consolidation of branches, reduction in administrative overheads, and optimization of resources.
2. Enhanced Bargaining Power: A merged entity will have a larger customer base and a stronger market presence. This can give them better bargaining power with suppliers, leading to cost savings in terms of procurement of goods and services.
3. Technological Advancements: Merging banks can leverage their combined resources to invest in advanced technologies and infrastructure. This can lead to improved efficiency, faster service delivery, and reduced costs in the long run.
4. Risk Diversification: Merging banks can diversify their risk by combining their loan portfolios and customer bases. This can help in reducing the overall risk exposure and enhance the stability of the merged entity.
Overall, the merger of banks can provide benefits of economies of scale, leading to cost savings and improved efficiency. Hence, statement 2 is correct.
Conclusion:
Out of the given statements, only statement 2 is correct. The merger of Punjab National Bank with Oriental Bank of Commerce and United Bank of India will not make it the largest lender in the country, but it will create the second-largest public sector bank.
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Consider the following statements regarding recent mergers of Public Sector Banks:1. Merger of Punjab National Bank with Oriental Bank of Commerce and United bank of India will make it the largest lender in the country.2. Merger of banks will provide benefits of economies of scale.Which of the above statements is/are correct?a)1 onlyb)2 onlyc)Both 1and 2d)Neither 1 nor 2Correct answer is option 'B'. Can you explain this answer?
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