Merger of 10 public sector banks (PSBs) into four entities in order to revive credit growth in the country.
Last Friday, Finance Minister Nirmala Sitharaman announced the merger of 10 public sector banks (PSBs) into four entities in order to revive credit growth in the country. Not withstanding any of the objectives propounded by the government regarding the merger, a recent report by Credit Suisse said that it is unlikely to revive credit growth or have meaningful cost synergies.
"Coupled with the ongoing moderation in growth for private banks led by auto sector slowdown and increased cautiousness, credit growth, thus, is unlikely to be revived by PSB mergers," it said in a report dated September 2.
The report added that the merger is also unlikely to meaningfully revive the flow of credit to the liquidity pressed as given the already high share of NBFC exposure in constituent banks, all four merged entities will have more than 10% of their loan exposure towards NBFCs.
"Hence, credit flow to NBFC will remain a challenge even as bond market access continues to remain differentiated for them," said Credit Suisse. Given the limited flexibility on restructuring and rationalisation, meaningful cost synergies from PSB mergers are unlikely, it said.
The report also stated “While the large recapitalisation improves the capacity for banks to grow loans, recent experience of State Bank Of India (SBI) and Bank of Baroda (BOB) indicates that focus on integration impacts near-term.”
Sitharaman announced the merger of Punjab National Bank, Oriental Bank of Commerce and United Bank with business worth Rs 7.95 lakh crore to make India’s second-largest bank. The other merger will be between Canara Bank and Syndicate Bank, which will make the country's fourth-largest bank, with Rs 15.2 lakh crore in business. Also, Union Bank of India will be merged with Andhra Bank and Corporation Bank to build India’s fifth-largest public sector bank with Rs 14.59 lakh crore in business. Indian Bank will be merged with Allahabad Bank to make India’s seventh-largest PSB with a business of Rs 8.08 lakh crore.