Rating agencies have raised concerns over the merger of public sector banks announced by Finance Minister Nirmala Sitharaman citing weak asset quality, but said mergers could be credit positive.
“The announced consolidation of PSU banks is a credit positive as it enables the consolidated entities to meaningfully improve scale of operations and help their competitive position,” said Srikanth Vadlamani, vice-president, Financial Institutions Group, Moody’s Investors Service.
“At the same time, there will not be any immediate improvement in their credit metrics as all of them have relatively weak solvency profiles,” he added.
Another rating agency, India Ratings, said the absorbing banks were not necessarily in good health.
Stating that bank consolidation was a good move in a step towards improving efficiency of the PSBs, Prakash Agarwal, head — Financial Institution, India Ratings and Research (Fitch Group), said, “It is possible that the current mergers may face more friction than the last one — of BoB, Dena and Vijaya. In that case, a large, well-capitalised strong bank absorbed two much smaller entities. In the present case, the mergers are mostly among larger banks, with the absorbing bank not necessarily in strong health.”
“However, given that the merged banks are on a similar technology platform, the integration should be smoother,” Mr. Agarwal added.
The government has announced that 10 banks will get ₹55,250 crore capital out of the ₹70,000 crore that has been allocated for the current year.
