InvestorQ : FM recently announced merger of 10 banks into four banks. Do you see Indian PSU banks benefiting from this move?
Arti Chavan made post

FM recently announced merger of 10 banks into four banks. Do you see Indian PSU banks benefiting from this move?

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2 years ago
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Let me begin by saying that bank mergers were long overdue because India has more PSU banks than it requires. From that perspective, the mergers were called for. If you look at the specific mergers, large banks like PNB, Canara Bank and Union Bank became the acquiring banks. Most of the PSU banks have high levels of NPAs and that needs to be handled. You need to look at these banking mergers from two perspectives.

· Firstly, these mergers will help rationalize costs for these PSU banks. Most PSU banks in India replicated the same set of banking standards and market insights. In the process, they ended up spending much more on branch networks, manpower, administrative costs etc. That is something that will now get rationalized. The most important advantage is that common services can be shared and overheads can be slashed and the savings can be used to give a digital push that is currently lacking. This also ensures that banks are well capitalized.

· The bigger advantage will on the treasury front. Typically, treasury operations in small banks don’t give them bargaining power in pricing and quotes. Mergers with larger banks will not only expand the corpus but also help to centralize the treasury operations. Being a key profit centre for any bank, this is one area where the advantages are likely to be visible in the short run and will be value accretive. Also lower costs will ensure better ROI in these cases.

Largely, these bank merger advantages to the likes of Union Bank, PNB and Canara will be on the treasury benefits and the cost savings.
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