Mergers in the time of slowdown: Why the PSU bank marriage could have waited

The falling economic growth has put additional stress on the banking sector. India’s Gross Domestic Growth (GDP) growth has slowed down from 6.6 percent in the third quarter of last fiscal to 4.5 percent in the same quarter of current financial year. This stress on the economy has naturally weighed on BoB as well. The bank’s net interest income (NII) continues to decline as slippages rise. Since merged numbers were reported, BoB has reported slippages worth Rs 32,746 crore while it has written-off non-performing assets (NPAs) worth Rs 20,998 crore.

Since the merger, the bank has reported an accumulated net loss of Rs 8,836 crore, decline in deposits by Rs 18,997 crore, gross NPAs have risen from 10.02 percent to 10.45 percent while advances grew by Rs 3,081 crore.

In the coming months, four more banks are set to merge. These are: OBC and United Bank of India into Punjab National Bank (PNB), Syndicate Bank into Canara Bank, Andhra and Corporation Bank to be merged into Union Bank of India and lastly, Allahabad Bank to be merged into Indian Bank.

The economy is staring at a slowdown, Reserve Bank of India (RBI) is indicating asset quality woes aren’t over yet and banks are hesitant to lend. Clearly, the consolidation of public sector banks in India, although much needed, couldn’t have been more ill-time.