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According to a report from Credit Suisse, meaningful cost synergies from public sector bank mergers are unlikely, given the limited flexibility on restructuring and rationalisation.
“While the large recap improves the capacity for banks to grow loans, recent experience of SBI and BOB indicates that focus on integration impacts near-term growth. With NBFC exposure of all four merged entities continuing to be over 10 per cent of loans, credit flow to NBFC will remain a challenge,” Credit Suisse said in the report.
“While the recap amount puts all four merged entities comfortably above the regulatory threshold of 8 per cent 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. 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,”it added.
The government, last week, announced consolidation of 10 PSU banks, combining into 4 entities and announced details of the recap plans. “Even as size and scale of operations increase, core profitability for these banks is likely to remain weak. Hence, they will continue to depend on external infusions inviting frequent dilutions,” the Credit Suisse report said.
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