Reactions to amalgamation of 10 public sector banks

Author(s): 

Union FM Niramala Sitharaman today (August 30, 2019) made an announcement regarding amalgamation of 10 public sector banks. Here are some of the reactions:

Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East and Africa, CBRE: “The government has initiated a positive reform through the consolidation of public sector banks and this will go a long way in further strengthening the banking infrastructure in the country. Real estate industry will be among the primary beneficiaries as the move in long-term will provide an evolved and better lending mechanism for the developers.”

Mohit Goel, CEO, Omaxe Ltd.: “The move to merge several public sector banks was long overdue and is indeed a welcome step. The merged banks will have greater resources and hence can play a much bigger, better and important role in the growth of economy. Their lending capacity will increase and this bodes well for all the sectors including real estate.”

Ashok Gupta, CMD, Ajnara India Ltd.: “This merger will surely become a milestone decision for Indian economy. For real estate sector, we are expecting that the lending capacity of the banks will increase which will directly help the sector to fight with ongoing liquidity crunch. Along with this, Finance Minister’s instruction to banks to link their retail product including housing loan to RBI’s repo rate will also support the sector.”

Rajiv Singh, CEO, Karvy Stock Broking: “Announcing another master stroke move to pave path towards 5 trillion dollar economy, Finance Minister has consolidated major PSU Banks. By consolidating 10 major banks into 4 and bringing the total count of PSB to 12 will help in credit up tick and will help revive the economy. Diligence in selection of entities, regional inclusion, usage of technological platform, NPA’s and allocation of funds to these entities will make sure of availability of liquidity in the system. Moreover, it will help these merged entities to aspire to be competitive on account of their All India presence besides cutting down on duplication of overheads. Recruitment of chief risk officers and linking their performance will bridge the discount in valuations between private and public banks. Encouragement of individual development plan will ensure smooth transition and succession plans for these merged entities which will also ensure proper functioning of these banks. She has commented that after Asset Quality review framework from RBI loan recoveries have improved over last one year which will help bring down NPAs.”

Abhimanyu Sofat, Head of Research, IIFL Securities: “In line with government earlier plan to reduce the no of PSU banks, the government’s decision to merge 10 banks into 4 is on expect lines. Except for growth on CASA, and reduction in cost to income ratio, the previously done merger of Bank of Baroda with Vijaya Bank and Dena Bank did not get appreciated by the market. We have not seen any significant fall in the credit cost leading to continued pressure on the stock price of BOB. Merger of relatively better run Indian Bank with Allahabad Bank is disappointing. It may be lack of appetite for some of the weak bank that they were left out of this merger exercise. Considering that still three fourth of saving accounts are with PSB and that there could be significant cost savings by merger, we do see this to be positive for the sector for a longer term perspective. Immediate release of funds for growth will ensure improvement in loan growth for the banks.”

Date: 
Friday, August 30, 2019