View on proposed banks merger

Suman Chowdhury, President - Ratings at Acuité Ratings & Research Limited.

"Acuité Ratings believes that the proposed merger between the three banks - Bank of Baroda, Vijaya Bank and Dena Bank is a step in the right direction to sustain the competitiveness of the public sector banks (PSBs). It is also consistent with the consolidation plan among the PSBs that has been articulated by the Government earlier. Given the increasing size and growing market share of the Indian private sector banks, such a merger and the consequent economies and synergies will strengthen the competitiveness of PSBs as a whole. Larger scale and a strong CASA base along with a pan India presence brought about by the merger will not only enhance the business profile but will also improve the access to capital for the merged banking entity. Better access and availability of capital in PSBs has become critical today to revive the lending capacity and the credit growth in the economy. The merger should also aid better risk pricing of loans and therefore support a recovery in profitability over the longer term. Further, it is likely to help in stressed asset resolution by increasing the bank's negotiation powers with larger corporates. Acuité, however, expects such a merger process to take time given the HR challenges and the various approvals necessary in listed banks. It is also important that the merger is followed up by putting in place a strong and competent management team along with a professional board so as to ensure its proper implementation and crystallization of the benefits."

Source : Equity Bulls

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