Impact of mergers of Public Sector Banks (PSB)

A merger is an agreement that unites two existing companies into one new company. Nearly every middle-market bank in the industry is looking to either acquire another bank or be acquired. Many banks see an acquisition or merger as a chance to expand their reach or scale up operations quicker. The aim behind mergers of public sector banks was to bring about operating efficiencies over time by lowering combined operating and funding costs while strengthening risk management practices.

Other benefits include the reduction in non- performing assets, increased capital base and liquidity leading to a reduced burden on the central government to recapitalize the public sector banks, again and again, also large size of the Bank will help the merged banks to offer more products and services and help in integrated growth of the Banking sector. The news about Dena bank, Bank of Baroda and Vijiya bank getting merged came. Another major merger happened in 2017 between Induslnd bank and Bharat financial inclusion limited of worth US$ 2.4 billion.

But the question remains that did mergers of PSB solve the purpose? Will there be growth? What about bad loans in the merged entity?  

Well, time will tell. Sooner or later something will become known or be revealed, as of now mergers of banks will substantially reduce NPA’s, it will pave the path for PSB’s, it will lessen government’s capital burden. Mergers will engender economies of scale, and will structurally improve operating efficiencies and governance. It will also help the merged entity to participate in credit growth opportunities and defend turf.
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Author- Sakshi Lunia
Kautilya
IBS Mumbai