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.
