19+ Pros And Cons Of Merger Of Public Sector Banks (Explained)

Public sector banks are the heart of any country. They are the banks in which the poorest of the poor of the country keep their savings and earnings.

These banks run on the name and image of being the banks of the people, but often these banks are unreliable, irresponsible, and inefficient due to bad staff, bad governance, and other problems.

The merger of public sector banks to form a centralized public sector bank is a move that could lead to the solution of some of these problems, but at the same time, it could also lead to other inconsistencies. 


  • Reduces Cost of Operation:

Public sector banks run on the on the money of taxpayers, with few exceptions of public-private partnership. The banks are costly to maintain and employ several tiers of staff. This will reduce the burden of the taxpayer ensuring the banks function at a low cost.

  • Broadened Geographical Reach:

The merger of public sector banks will also ensure the centralized bank will have a broader customer base and a broader development in different regions of the country. This will lead to the better functioning of the public sector banks and a better development of the country.

  • Risk Management is Benefitted:

With the merger of the banks, a big benefit of the centralized public sector bank will be the liberty of having more capital and more work force at hand. This will ensure that the banks function with efficiency and do not keep falling into debt through bad loans and bad governance.

  • Minimises Inefficiency:

The merger of public sector banks also ensures that the inefficiency that seems so common in public sector banks does not remain a stagnant idea. Public sector banks are always considered to be inefficient because of the staff who seem to be unhelpful, but this changes with mergers due to lesser load on the employees.

  • Reduction of Disparity:

The public sector banks are often plagues by problems of disparity where even workers of the same tier sometimes have different salaries. This leads to the dissatisfaction of the workers, making them clumsy at their work. To reduce this disparity the merger of public sector banks is a good option.

  • Increase in Capital Base:

The merger of public sector banks leads to an increase in the base of capital of the centralized bank, because the profits and capital of all the banks that have come together are now amalgamated in one place. This makes the bank less prone to economic crisis and debt.

  • Redundant Posts Abolishes:

There are several posts in official government beuraucracy that does not require continuation in this day and age. These posts however still remain because of a form of inertia. The merger will help management get rid of these posts and ensure the bank is less burdened with salary.

  • Uniformity in Service Conditions:

The first development that people will notice after the merger of public sector banks is that there will be uniformity in the services provided between the branches. This will help the consumer in completing bank work efficiently, while at the same time receiving certain benefits.

  • Re-capitalisation:

The merger of public sector banks reduces a burden off the government as well, as it ensures there is stability in the income and expenditure of the bank. The banks which had previously given out bad loans and would not be able to sustain without government help will now be better off with the merger.


  • Regional Banks Suffer:

Due to the merger of public sector banks and the creation of a centralized bank, the public sector banks of regional strata face problems of loss of customers, loss of workforce and also lesser chances of surviving through the merger due to lesser viable options available.

  • Increase in Centralisation:

With a merger what usually follows is a rapid centralization of forces and services due to the merger. Sometimes this leads to the problem of dissatisfaction of consumers because local branches are often shut down and followed by setting up of centralized offices in the city centre.

  •  Vulnerable to Global Economic Crisis:

The bank that is formed, once centralized and merged with other banks is one that will naturally be massive in size. This means it will have to itself more capital and more customers. While this is a good development, it is also a problem if the world hits an economic crisis.

  • More Pressure on Stronger Banks:

During a merger and a few days even after the merger, the bigger banks, the ones more efficient have to take up more workload and establish a better method of functioning to cover up for the inefficiency or incapability of smaller sized local banks.

  • Bad Loans:

The merger of banks still does not provide a solution to the problem of bad loans, as loans previously given away will result in the formulation of bad loans continued. The merger might make it easier for the banks, but the bad loans will remain and have to be dealt with.

  • Lay-offs:

The merger of public sector banks also runs the risk of massive lay-offs due to the existence of a centralized structure of the bank. This may mean many employees will have to be let go of in order to manage funds and ensure the newly formed bank does not go into lockdown.

  • Employment Issues:

The lay-offs will naturally lead to an employment problem which might lead to protests and disturbance. This will be a hindrance in the functioning of the bank, as a newly formed centralized bank will not have the advantage of ensuring that they can deal with it smoothly.’

The merger of public sector banks is an often recommended solution that economists provide to governments when they are in need of solutions. This makes it a common solution to the problems of the economy, but at the same time this may mean the start of newer problems for the government. 

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