Statsguru: How PSBs deal with integration in a challenging biz environment

The RBI in December 2019 noted that private sector banks accounted for 69 per cent of incremental loans in 2018-19.

The announcement of swap ratios for the combination of 10 public sector banks (PSBs) into four has put the spotlight on such unions, and how they have fared before. Analysts would be keenly watching as to how the entities deal with the integration in a challenging business environment.

Each of the 10 banks participating in the process has more bad loans than it did five years ago, though much of it is to do with better disclosures. The slowing economy has reduced credit offtake. Bad loan ratios are expected to largely worsen for the anchor banks, though net non-performing assets show a decline for some. This also holds true for capital adequacy. The anchor banks will see their capital cushion decline in at least two instances, show analyst estimates.

However, this is not unique to the latest exercise. Previous attempts of bringing together PSBs may have helped the weaker ones, but tended to weigh on the anchor banks. The State Bank of India saw its net non-performing assets go up after its 2017 merger with its associate banks and the Bharatiya Mahila Bank.

This was also true for Bank of Baroda’s 2019 merger with Dena Bank and Vijaya Bank The capital adequacy ratio also declined in both instances

The latest set of mergers is likely to take time to iron out the kinks, suggest analysts. The Reserve Bank of India in December 2019 noted that private sector banks accounted for 69 per cent of incremental loans in 2018-19. They also had a similar share in deposits. It remains to be seen if bigger PSBs would be able to protect market share.