The merger of Public Sector Banks (PSBs) into four entities is unlikely to revive credit growth or have meaningful cost synergies, said a report by Credit Suisse.
According to the report, published on September 2, “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”.
The report also added that the merger is also unlikely to meaningfully revive the flow of credit to the liquidity pressed non-banking financial companies (NBFCs) 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.
Finance Minister Nirmala Sitharaman has announced the merger of Punjab National Bank, Oriental Bank of Commerce and United Bank with a 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.