Central Government Notifies Schemes for Consolidation of Public Sector Banks

The Ministry of Finance, Department of Financial Services, issued a series of Notifications on March 4, 2020, detailing several significant amalgamation schemes for public sector banks. These schemes, namely the Amalgamation of Oriental Bank of Commerce and United Bank of India into Punjab National Bank Scheme, 2020 (G.S.R. 153(E)), the Amalgamation of Andhra Bank and Corporation Bank into Union Bank of India Scheme, 2020 (G.S.R. 154(E)), the Amalgamation of Syndicate Bank into Canara Bank Scheme, 2020 (G.S.R. 155(E)), and the Amalgamation of Allahabad Bank into Indian Bank Scheme, 2020, were formulated by the Central Government in consultation with the Reserve Bank of India. The legal basis for these schemes derived from the powers conferred by Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. The primary reason for their issuance was to facilitate the merger of several public sector banks, thereby consolidating their operations and creating larger, more robust banking entities. All these schemes came into force on April 1, 2020.

Under these schemes, the entire undertakings of the transferor banks—Oriental Bank of Commerce, United Bank of India, Andhra Bank, Corporation Bank, Syndicate Bank, and Allahabad Bank—were transferred to and vested in their respective transferee banks—Punjab National Bank, Union Bank of India, Canara Bank, and Indian Bank. This transfer encompassed all business, assets (both tangible and intangible), liabilities, rights, titles, interests, powers, claims, licenses, permits, approvals, incentives, loans, subsidies, and all property, whether movable or immovable, real or personal, and intellectual property. The schemes stipulated that upon commencement, the boards of the transferor banks stood dissolved, their entire share capital was cancelled, and their shares were delisted from stock exchanges. A crucial provision addressed the interests of employees, ensuring that every permanent and regular officer or employee of the transferor banks would become an officer or employee of the respective transferee bank. Their terms and conditions of service, including pay and allowances, were mandated to be no less favourable overall than what they would have received in their original banks, with no break in service. Employees who opted not to join the transferee bank were deemed superannuated and entitled to all superannuation benefits. Furthermore, the schemes provided for the seamless transfer of all existing contracts, deeds, bonds, agreements, and legal proceedings, ensuring their continued force and effect as if the transferee bank had been the original party. The legislation provided: “On the commencement of this Scheme, the undertakings of the Transferor Banks shall be transferred to and shall vest in the Transferee Bank.” This ensured a comprehensive and automatic transfer of all aspects of the merging entities.

The legislative intent behind these amalgamation schemes was to rationalize the structure of public sector banks in India, aiming for greater efficiency, scale, and financial strength. The earlier legal position allowed for the independent operation of numerous public sector banks, but the policy rationale shifted towards consolidation to create fewer, larger banks capable of competing more effectively, improving governance, and enhancing their capacity to extend credit and absorb financial shocks. These schemes addressed potential statutory gaps and practical issues that could arise during such large-scale mergers by providing a clear, legally binding framework for the transfer of all assets, liabilities, and human resources. They ensured that the transition would occur without requiring individual acts, deeds, or consents for the transfer of property, intellectual property, or legal instruments, thus preventing operational disruptions. The schemes introduced new obligations for the transferee banks, particularly concerning the protection of employee interests and the fair treatment of shareholders. They mandated a specific procedure for determining the Share Exchange Ratio, involving independent valuers and merchant bankers, and established a mechanism for minority shareholders to raise objections to this ratio through an expert committee. This framework aimed to safeguard the rights of shareholders during the consolidation process. All permits, licenses, tax benefits, and security interests of the transferor banks were automatically transferred to the transferee banks, ensuring continuity of operations and legal standing. The equity shares issued by the transferee bank were to rank pari passu (meaning equally in all respects) with existing equity shares. The schemes also outlined provisions for handling assets and liabilities situated outside India, entrusting the chief executive officer of the transferee bank with the responsibility to effectuate such transfers in accordance with foreign laws, ensuring that benefits would be available to the transferee bank as if created ab initio (from the beginning) in its favour. These comprehensive provisions were designed to facilitate a smooth, legally sound, and operationally effective merger of these significant financial institutions.

Keywords: Bank Amalgamation, Public Sector Banks, Banking Schemes, Financial Services, India, Punjab National Bank, Union Bank of India, Canara Bank, Indian Bank, Bank Consolidation

Geo Tags: India, New Delhi District: Not Applicable