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'PSU bank merger plan can bring in structural benefits'

The government’s PSU bank merger plan can bring in structural benefits if short-term challenges are handled well, says CRISIL
New Delhi: If short-term issues are handled well, the government’s plan to merge 10 PSU banks can bring in structural benefits, CRISIL said in a report on Friday. While noting that there will be clear long-term benefits of the proposed amalgamation, CRISIL said that any such large scale integration does entail some short-term challenges. The list of such challenges includes, managing cultural differences and manpower, branch rationalisation, technological integration, and potential opposition from trade unions. If these challenges are handled well, the amalgamation plan will enable PSBs to compete more effectively with other constituents in the financial sector, the report said.

‘Plan reflects decisive intent’

“The announcement of multiple bank amalgamations at one go, as against single announcements of the past, reveals the decisive intent of the government to go ahead with its consolidation agenda for PSBs. The consolidation of PSBs is expected to bring in economies of scale, increase operating efficiencies, and result in business synergies,” CRISIL said.

The backdrop

On August 30, Minister of Finance Nirmala Sitharaman announced a set of reforms for public sector banks (PSBs) including consolidation, capital infusion and measures to enhance governance standards. A key announcement was the amalgamation of six PSBs into four anchor PSBs. The proposed amalgamation is subject to approval by the boards of the respective banks as well as the required regulatory approvals. On completion of the proposed amalgamations, there will be 12 PSBs, of which eight PSBs (PNB, Canara, Union, Indian, SBI, BoB, Bank of India, and Central Bank of India) are expected to have a strong national presence as per the amalgamation scheme, while the remaining 4 (Indian Overseas Bank, UCO Bank, Bank of Maharashtra, and Punjab & Sind Bank) are expected to have a strong regional focus.