7 steps a customer should take as govt merges PSU banks

On September 17, 2018, the central government proposed to merge three PSU banks — Bank of Baroda, Dena Bank and Vijaya Bank. The news came as a surprise to stakeholders.

Rajeev Kumar, Secretary - Department of Financial Services, Ministry of Finance said, “The combined lending entity will be India's third largest globally competitive bank.”

On this announcement, Finance Minister Arun Jaitley added, “The proposal will now need to be passed by the boards of individual banks. The banks' boards will shortly meet and take the decision.”

In April 2017, State Bank of India (SBI) had merged five of its associate banks. This was the largest consolidation exercise in the banking history of India. Now, proposal of 3 other PSU banks merger it seems to be a wise decision by the government to consolidate banks.

Harsh Vardhan, executive in residence, Centre for Financial Services, SP Jain Institute of Management Research said, “If this merger is executed well it can set the path for future mergers among PSU banks which will strengthen the banking sector in India.”

Let us understand key steps on what you should take with respect to your accounts, loans, fixed deposits, etc.

Anil Rego, CEO & Founder, Right Horizons said, “The money in PSU banks is absolutely safe, with or without a merger. We have already seen that nothing really changed during the SBI and associates merger.”

Ajit Venugopalan, Managing Director, SVC Bank (SVC Co-operative Bank) added, “All stakeholders need to understand the context of a merger first. It is in the interest of the customers, the banks and definitely the economy of the country. So, there is no reason to panic. When banks merge, sufficient care is taken to ensure that the impact on customers is minimal.”

After acquisition of banks, it’s recommended to know the new bank (merged entity) thoroughly with free and chargeable services, interest rates for deposit and borrowing, etc.

For instance, Venugopalan said, “The rates of banking services like maintenance of minimum balance or average quarterly balance will be left unchanged for some time at new bank. However, eventually these may be changed as per the acquiring bank’s rules and regulations.” Going forward any new service that you may seek, however, may be offered to you as per the rules of the new bank.

As the board of individual banks approves the merger, there will be official announcements and procedure communicated by your bank through emails / letters on residential address for transition of savings/current accounts, locker facilities, fixed deposits, loan accounts, etc. with the new bank. So, keep a track of it.

Around this time there are possibilities of fraud emails circulated so stay alert and don’t share your account details, internet banking id and pin, etc. to any unknown / phishing emails. Before replying it’s recommended to discuss with your bank branch or bank call centre.

Venugopalan warned, “If you have an existing loan with your bank which gets merged with a new entity, there may be a change in the interest rate for your loan. The new rates will be linked to the benchmark rates of the bank which takes over your current lender.”

The bank will inform you much in advance before effecting any change in your loan interest rate. He added, “Customers of the bank should negotiate to get the earlier rates. But, it is dependent from bank to bank to finally revise it for existing loan customers.”

Navin Chandani, Chief Business Development Officer, BankBazaar.com added, “There would be no sudden change in the lending or deposit rates. They would be harmonized across the banks. Customers on long-term deposits, etc., may not see their deposit rates changed. However, the actual changes would ultimately depend on the merger terms and conditions that will be revealed over time.”

Chandani said, “One key thing you would need to keep in mind is that your account number and the associated details such as the IFSC code would change post-merger of the banks. So, you would need to update it wherever you use it.” However, the banks would give enough time to customers and advance warning to get this done within the stipulated period.

Venugopalan said, “While transition to bank website for internet banking, the online banking portals of the merged banks may cease to exist and you may be redirected to the merged entity’s portal.” However, depending on the new bank’s policies, you may be able to continue to use your older credentials (user ID and password) for online banking.

But, stay alert while redirecting to new website and confirm you are login to correct bank website for internet banking and not on phishing webpage which may look similar to new bank homepage.

Sandeep Shah, Partner, N.A Shah Associates LLP said, “As a result of rationalisation of overlapping branches, it is possible that some of the branches will be closed resulting into disruption of locker facilities, some of the ATM outlets being reshuffled etc. The account holder and deposit holder should closely watch the communication received from the banks in this regard.”

Often customers panic with news of bank merger expecting their banks may announce closure of services and stop operations in near future due to heavy losses and rising Non Performing Assets (NPAs). These customers even start redeeming fixed deposits from the bank in panic. But, experts from banking field say there is no need to panic with announcement of bank mergers.

Venugopalan said, “Generally it is seen that post-merger the new bank entity performs more efficiently, ensuring better customer centricity. A decision whether to continue with the post merged entity or not should be taken purely on experience basis – that is how relevant is the product proposition, how swift and warm is the service and whether the new bank has a stronger infrastructure to support the needs of customers. The decision should not be based merely because some change in identity has happened.”