Bank consolidation: You have nothing to fear
Earlier this year, five associate banks—State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore—and the Bharatiya Mahila Bank, merged with State Bank of India (SBI). Reports suggest that the government is exploring further consolidation of state-owned banks. India has 21 public sector banks.
Recently, social media was abuzz with rumours the government would close nine public sector banks.
The disturbing part was that people who spread these rumours asked customers to withdraw their money from these banks. To avoid falling victim to such rumours, it is important to know what bank consolidation actually means.
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At a corporate level, it means merging of banks’ balance sheets, customers and customer databases.
For instance, all branches of the five associate banks and Bhartiya Mahila Bank started operating as branches of SBI from April 1, and their customers are now customers of SBI. Customers remain account holders, albeit in the merged entity.
The entire process of the merger—in terms of technical integration of customer databases, issuing of new passbooks and chequebooks— could take a few months to complete. Over this period, some branches could close down, if there are overlaps.
However, for the customers, it is business as usual. For example, if you were a customer of State Bank of Patiala, you can still walk into your branch for all the services you need. Your deposits remain safe.
In case of fixed deposits, the interest rate will continue to be the same until maturity. On savings accounts, the interest rate offered will be that of the entity with which your bank had merged.
If your bank merges with another bank today, you can continue to use your old bank’s chequebook for cash withdrawals and payments.
For internet banking, the online banking portals of the merged banks would cease to exist and you would be redirected to the merged entity’s portal.
However, you can continue to use your older credentials (user ID and password) for online banking. These do not require to be changed.
The IFSC and MICR codes—which are used for online transfer of funds— would change over time, not immediately. These changes would be communicated to customers in advance.
Accordingly, new chequebooks would be issued to the customers with the changed codes and branch addresses if your branch has closed down.
Once the merger is complete and new codes are effective, you may be required to issue fresh standing instructions for electronic clearing service (ECS) transactions such as those for equated monthly instalments.
For existing loans, the terms and conditions—and the interest rate too—continue to be the same as earlier.
What could change, however, is the personal touch that customers may have been getting in the branches of smaller banks. Staff rotation and transfers are less frequent in those banks, hence you could have had a banker in one branch for fairly long periods. The experience in smaller banks is also different because their branches usually have relatively fewer customers.
And yet, it can be safely said that when banks merge, the impact on customers is minimal.
Your money remains safe and you need not pay heed to random rumours.