'Benefits of PSB mergers likely over medium-to-long term'

New Delhi: Benefits of merging 10 Indian state-run banks into four entities are likely to be accrued over the medium-to-long term basis, a research report said on Tuesday.

Centrum Broking Research's report said that the consolidated banks will likely see an improvement in economies of scale and efficiency of operations over the medium-long term.

"The government has also announced some measures on reforming the practices in the boards of these banks.

"These could result in more efficient management of leadership, higher levels of accountability and control, and easier administration from the government's viewpoint," it said.

The report cited the appointment of a chief risk officers in PSU banks as a key measure to bring in better management of the PSBs.

It also pointed out that banks might face integration challenges over the near-term.

"The logic behind the selection of banks in the merger plan is synergies in geographical presence, technology platforms, and benefits of scale, with minimal disruption to customers.

"In our opinion (and going by recent precedence), consolidation has generally been near-term detrimental to the stronger (acquiring) banks and an extended integration period remains a challenge for these entities," the report said.

"We believe the proposed mergers will face near-term challenges by way of integration of processes, human resources, consolidation of financials, and branch network rationalisation," it added.

On last Friday, the Central government announced the mega-merger of 10 PSU banks into four, where the Punjab National Bank, the Oriental Bank of Commerce and the United Bank to merge become the second-largest PSB while the Canara Bank and the Syndicate Bank will amalgamate to make the fourth-largest PSU bank entity.

Finance Minister Nirmala Sitharaman also said that the Union Bank, the Corporation Bank, and the Andhra Bank will be merged to become the fifth-largest PSU bank and the Indian Bank and the Allahabad Bank merge to be the seventh-largest.

Post consolidation, the number of PSU banks will come down from 27 to 12 and this, according to Sitharaman, was "the right number of PSU banks to have".

"The mergers would help in better management of capital," she said, while announcing the merger proposal as a part of a package of reforms for the economy on last Friday.