InvestorQ : Do you see any major challenges for the bank mergers that were announced by the FM in the previous week?
Arti Chavan made post

Do you see any major challenges for the bank mergers that were announced by the FM in the previous week?

Answer
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12 months ago


The real question that analysts are now asking is whether the merger will really solve the current problems that banks are facing. Banks have just come out of a major NPA crisis and despite NPAs coming down by 200 bps this year, gross NPAs at 9.1% are still quite high. Then there are real problems like IL&FS, Dewan Housing, Jet Airways and NHAI to worry about. While mergers will make banks capitalized it is not clear whether it will make them more profitable. In the past you might have seen that when multiple banks with similar problems merge, impact is limited on the positive side. Just merging banks may not help unless there are other changes like privatizing ownership, management freedom and market linked performance incentives.

The second challenge to the bank mergers will come from softer employee related issues. The merger will certainly result in job losses and bank unions are already up in arms. Job loss in banks is economically and politically sensitive, especially with major state elections coming up. There is also the larger issue of culture fit between two banks and that will be a major challenge in the bank mergers.