In India, bank mergers have become more common in recent years. This is because the government wants to strengthen and consolidate the public banking sector. The Corporation Bank and Andhra Bank merger with Union Bank of India, which will take place on April 1, 2020, was one of the most important mergers during this phase. In the context of Indian corporate and banking laws, this article looks at the legal basis, structural framework, procedural elements, and effects of this merger. The goal is to make things clear for law students, lawyers, and people who want to become lawyers about how the merger will work, what the legal instruments are, and how they will affect different groups.
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Legal Foundation of the Merger
The merger was formalized under the Amalgamation of Andhra Bank and Corporation Bank into Union Bank of India Scheme, 2020, notified by the Government of India through a Gazette notification dated March 4, 2020. This notification was issued under the authority of Section 9 of the:
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.
The central government, after consultation with the Reserve Bank of India, exercised its powers to sanction the merger of these banks under the above Acts. The scheme came into force on April 1, 2020.
Structural Transformation Post-Merger
As per the scheme:
All branches of Andhra Bank and Corporation Bank were to operate as branches of Union Bank of India.
All customers, depositors and account holders of the merging banks were considered customers of Union Bank of India from the effective date.
This structural integration was aimed at leveraging synergies, enhancing efficiency and expanding operational footprints.
Share Exchange and Equity Allotment
An essential aspect of the merger was the equity share exchange approved by the respective Boards on March 5, 2020, detailing the conversion ratios:
Andhra Bank shareholders: Received 325 equity shares of Union Bank of India (face value ₹10 each) for every 1,000 equity shares held (face value ₹10 each).
Corporation Bank shareholders: Received 330 equity shares of Union Bank of India (face value ₹10 each) for every 1,000 equity shares held (face value ₹2 each).
To address objections from minority shareholders, an Expert Committee headed by Justice S.D. Pandit, retired Judge of the Gujarat High Court, reviewed the concerns. The Committee recommended no change in the share exchange ratio. The recommendation was accepted in the Board meeting held on March 17, 2020.
The Record Date for share allotment was fixed as March 23, 2020, and shares were allotted on April 1, 2020.
Union Bank allotted 2,98,40,25,503 equity shares (including 2,97,88,35,104 in demat mode and 51,90,399 in physical mode).
Listing approvals were obtained from BSE and NSE on April 16, 2020.
Physical certificates were delayed due to COVID-19-related postal suspensions.
Impact on Customers and Operations
The Union Bank of India made it clear that there would be no immediate changes to the banking operations of former Andhra Bank and Corporation Bank customers:
Account numbers, IFSC codes, MICR codes, and branch operations remained unchanged post-merger.
Customers were advised that their banking relationships would continue seamlessly under the umbrella of Union Bank of India.
This assurance was crucial for mitigating transitional confusion and upholding customer confidence.
Know about various merger examples in India.
Broader Context: PSB Consolidation in India
The Andhra Bank merger was part of a larger consolidation initiative announced by the Prime Minister in August 2019 and approved by the Cabinet later that year. The goal was to reduce the number of public sector banks and create stronger, better-capitalised institutions.
In total, 10 public sector banks were merged into four anchor banks:
Anchor Bank | Merged Banks |
Union Bank of India | Andhra Bank and Corporation Bank |
Punjab National Bank | Oriental Bank of Commerce, United Bank |
Canara Bank | Syndicate Bank |
Indian Bank |
These mergers, effective April 1, 2020, followed earlier consolidations such as the Bank of Baroda-Dena-Vijaya merger (2019) and the State Bank of India associate bank mergers (2017).
Intended Benefits of the Merger
The merger was expected to deliver several strategic and financial advantages
Economies of Scale: Larger banks with broader customer bases and capital access.
Operational Efficiency: Consolidated operations, shared technologies, and reduced duplication.
Product Diversification: Wider range of financial products across a unified platform.
Enhanced Competitiveness: Stronger institutions capable of global competition.
Capital Synergies: Expanded capital base, reduced government recapitalisation needs.
Geographical Reach: Increased penetration through shared branch networks.
The Union Bank of India estimated that the merger would generate cost and revenue synergies worth approximately ₹2,500 crore over three years.
Challenges and Risks of the Merger
Despite the projected benefits, several challenges surfaced in legal and financial discourses:
Governance and NPA Risks: Merging with weaker banks exposed anchor banks to higher Non-Performing Assets (NPAs).
Employee Discontent: Unions feared job losses, role changes, and cultural friction.
Customer Transition Issues: Mismatches in IT systems, cheque books, and account identifiers, though not immediate, were possible during integration.
Operational Redundancy: Rationalisation of branches could result in closures in overlapping areas.
Cultural and HR Integration: Harmonising work cultures and internal practices posed significant managerial challenges.
Regulatory and Risk Management: Appointing specialized Chief Risk Officers became mandatory to handle the complexity of larger, merged entities.
Also, check out the difference between a merger and an amalgamation.
Judicial and Academic Perspectives
Critiques of the merger trend have emerged from the academic and financial communities. Notably, Prof. Abhiman Das (IIM-A) and Prof. Subal Kumbhakar (SUNY, USA) questioned the economic rationale behind recent PSU bank mergers:
Dena Bank's efficiency reportedly declined by 60% (2014–2018).
Oriental Bank of Commerce saw a decline in performance before stabilizing post-merger.
Punjab National Bank experienced a drop in efficiency metrics post-merger.
They argued for restructuring weaker banks independently, rather than burdening stronger anchor banks.
Additionally, the RBI’s Financial Stability Report flagged higher systemic risk in merged PSBs compared to unmerged ones. While the sector saw reduced risk after the first pandemic wave, the RBI highlighted that state-run banks remained more vulnerable than private peers.
Legal Significance and Learning for Law Professionals
From a legal standpoint, the Andhra Bank merger underscores several important areas of study and practice:
Interpretation of Section 9 of the Banking Companies Acts in enabling such structural changes.
The role of government notifications and Gazette publications in operationalizing mergers.
The importance of shareholder protection evidenced by the formation of the Expert Committee.
Practical application of corporate governance in Board approvals and equity allocations.
The interplay of regulatory bodies like the RBI in shaping the banking landscape.
To Sum Up
The Corporation Bank and Andhra Bank merger with Union Bank of India was a significant legal and structural reform as well as a financial event. The move was meant to improve operational strength, financial stability, and customer service all under one roof but it also brought about difficult problems with governance, integration and regulations.
This case is a good example of statutory mergers, corporate restructuring, and public sector governance for legal professionals and students. The merger shows how economics and the law work together to change the way institutions work in India's banking sector.
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Andhra Bank Merger: FAQs
Q1. Which bank was amalgamated with Andhra Bank?
Andhra Bank was amalgamated with Union Bank of India along with Corporation Bank under the Amalgamation Scheme of 2020, issued by the Government of India. This merger came into force on April 1, 2020, thereby designating Union Bank of India as the transferee bank.
Q2. What is the reason for the cessation of Andhra Bank’s independent operations?
Andhra Bank stopped operating on its own because of a government-approved plan to strengthen public sector banks through consolidation. Through the merger, operational efficiency would be improved, the capital base would grow, and Union Bank of India would become a stronger banking institution.
Q3. Has the IFSC code of Andhra Bank changed post-merger?
No, the IFSC codes, account numbers, and branch details of Andhra Bank remained unchanged immediately after the merger with Union Bank of India.
Q4. What became of Andhra Bank’s share price following the merger?
Andhra Bank’s shares ceased trading post-merger. Shareholders received 325 Union Bank shares for every 1,000 Andhra Bank shares, in accordance with the approved share exchange ratio.
Q5. Is Andhra Bank classified as a private sector bank?
No, Andhra Bank was a public sector bank prior to its merger, operating under government ownership and regulation as per the Banking Companies Acts.
