On Friday, Finance Minister Nirmala Sitharaman announced huge amalgamation of state-owned banks that will see 10 of them being merged to form four bigger lenders to strengthen a sector which is struggling with a bad-loan cleanup.

The government decided that amalgamation is the “best route” for creating lenders of global scale that can support the economy’s growth to $5 trillion by 2024, instead of privatising some of these banks or bringing in strategic investors.

According to officials, Finance Minister announced four new sets of mergers — Punjab National Bank, Oriental Bank of Commerce and United Bank of India to merge to form the country’s second-largest lender; Canara Bank and Syndicate Bank to amalgamate; Union Bank of India to acquire Andhra Bank and Corporation Bank; Indian Bank to merge with Allahabad Bank. Banks have been merged on various basis like operating efficiencies, better usage of equity and their technological platform.

Sitharaman further said that the latest consolidation move will slash the number of state-owned lenders to 12 from 27 in 2017, highlighting the banking reforms undertaken by the Narenda Modi government that have also included significant tidying-up of balance sheets.

Rajnish Kumar, the Chairman of State Bank of India said, “Today’s announcements on bank mergers is a cohesive and a clear recognition that bigger banks have that much more ability to absorb shocks, reap economies of scale as well as the capacity to raise resources without depending unduly on the exchequer.”

According to a senior banking industry official, Managing directors of these banks were informed about the merger decision earlier in the day by the department of financial services.

Finance secretary Kumar said that it would be a smooth consolidation and won’t lead to any disruption for the customer.

He said that the consolidation proposal would now be taken up by the bank boards and the effective date of merger will be decided by them only.

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