Public Sector Bank

The merger of Public Sector Banks to Revive the Credit Growth

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Credit flow to NBFC remains a challenge

According to the reports, the merger of 10 public sector banks into four is improbable to resuscitate credit growth and to have meaningful cost synergies. The report published on 2 September 2019 stated, “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.”

All four merged entities will have more than 10% of their loan exposure towards NBFCs; the merger is also unlikely to meaningfully resuscitate the flow of credit to the liquidity pressed NBFC exposure in constituent banks. Credit flow to NBFC will remain a challenge even as bond market access continues to remain differentiated for them.

List of mergers

The merger of Oriental Bank, Punjab National Bank and United bank with business worth 7.95 lakh crore making it India’s second-largest bank, announced on 30 August 2019 by finance minister Nirmala Sitharaman. The other merger will be between Syndicate Bank and Canara Bank which will make the India’s fourth-largest bank with 15.2 lakh crore in business.

The merger of Union Bank of India with Andhra Bank and Corporation Bank to form India’s fifth-largest public sector bank with the business of 14.59 lakh crore. Indian Bank will be merged with Allahabad Bank to build Indian’s seventh-largest PSB with a business of 8.08 lakh crore.

Focusing on integration affecting near term growth

Further the report stated, “While the recap amount puts all four merged entities comfortably above the regulatory threshold of 8% common equity tier 1 (CET1), given the recent experience of SBI and BOB, we believe focus on integration affects near-term growth, and hence, expect growth to be impacted for them too. Hence, they will continue to depend on external infusions inviting frequent dilutions.”

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