Effect on bank of merger

Fundamental Analysis
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How will recent merger effect PNB . Does it has negative effect on pnb as smaller bank will merge in it
@sabkaview

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It boosts strong nationwide presence and strengn global reach…
Its not easy for a existing PSU to compete with private banks…

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Why should they compete with private banks when their jobs are secure. They don’t need to perform. They will be bailed out if they get in trouble.

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We will have to wait to see wheather it plays out well in long term or situation remain same .

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I was talking abt the PSU performance… NPA…frauds… sales growth… net profits…

not the case of PSU employees… my dear friend…

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But there should be some place to compete for banks anyway no matter how you really put it and that’s really it no matter what. See me going or what ? I really do not care with that matter simply. Do get me going with all the extreme goods of banks. Banks should have space.

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Why only banks , every govt employee and department and PSU’s performance has to compete with private.

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8

when you merger 2 /3/4 non performing asset in one , it will result the same . as i understand all NPA will remain same .

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i think Finance Minister will merge Nifty And Bank nifty together because one is slow another one is fast , bro maybe they can do

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Bank mergers, in reality shouldn’t have any net effects, because it doesn’t change their books. But why should they do it?

In this case, Government is the owner of all these banks (by way of being the largest shareholder) - in private banks, no entity is allowed to hold as much stake as government holds in PSBs. Now, if you are an investor, you do not want too many companies competing with each other and continue to make losses; with onus on providing capital adequacy is on the investor! None of the private sector banks work on this principle and market forces will take care of it - however, government does provide some support, in case of systemically important banks.

Ideal would have been to combine all loss making ones together & all profit making ones together and handle them separately. But, this would increase burden on the government. Therefore, government has chosen to combine the good with not-so-good and hope to improve efficiency of scale. Efficiency can be achieved through:

  1. Consolidation of branches: one can afford to have a bigger branch & thus better service (??)
  2. Consolidation of technology platforms: over a period of time, spend on technology will come down…
  3. Chance of improving underwriting abilities: each bank will have its strengths, but will be compelled to enter many spaces, where they do not have expertise. It is hoped that merger improves the situation…
  4. Asset monetization: each of the banks occupy huge piece of land (as headquarters, regional head-office…). This itself can unlock some capital to banks.
  5. Process & best practice sharing…

Many more… There is more reason to do merger than otherwise, chief among them is there are too many banks owned by the government and that number shouldn’t ideally exceed 5 (government has a better job to do than running banks, when there are so many private banks that run much better than the government banks…)

Intentions may be good, but results depend on execution. Let’s see how it unravels - irrespective of what happens, it is for good. If they fail, good riddance of white elephants; if they do well, it does go a long way in improving our perception of how public sector works, apart from adding to the wealth of the nation!

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11

Thanks and what are your views regarding capital infusions in banks again and again but their stock or value doesn’t seem to improve by it.

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Repeated capital infusions, in general (but has exceptions), is dangerous for both the giver and the receiver. If the receiver has a requirement of repeated capital infusion, they must be doing something wrong and in this case, it is everytime - conclusions are for anyone to draw!

But why do they keep receiving repeatedly?

This is prodigal son syndrome - parent tends to think that “this time it will be different and son will will improve”! In this case, parent (govt) has an equal hand in spoiling the book of the child (bank).

There are several strange parts that distort the game:

  1. Regulator has limited regulatory oversight over PSB, but huge oversight (nearly unlimited) on private sector banks to the level of interference.
  2. Regulator doesn’t have much experience in running commercial banks, but tends to throttle them in the name of protecting depositor’s/shareholder’s interest!
  3. Rating agencies: it may be easier to allow self certification and verify it during audit than have rating agencies to rate debt market, when they are not accountable.
  4. Banks, PSBs in particular are prone to meddling from Govt policies (priority sector lending, loan waivers…) where defaults are either partly covered or payment from govt gets delayed; but NPA norms are as per RBI and this distorts the whole situation…

In short, I do not envy the guys who are running PSBs: lower than market salary, all hands tied up, slow decision making process, employee unions, difficulty in upgrading technologies…

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