5 Reasons Why PSB Bank Merger is a Good Idea

1. NPA Resolution May get Quicker: Resolution of NPAs becomes difficult when you have so many banks trying to arrive at an understanding amongst themselves. So, to the extent that the discussion is happening among fewer banks, I think the resolution of NPAs will be facilitated.
2. Easy for Government to handle Management Issues: The most important rationale is that the multiplicity of banks was making enormous demands on the bandwidth of the Finance Ministry in terms of appointments of chairmen, managing directors, executive directors, independent directors. Even though they have the banks board bureau to advise them on appointments, the process is extremely time-consuming. There were long delays in making the senior appointments, as a result of which these banks have been incurring substantial costs. And so, collapsing the number of banks makes it easier for the Ministry to monitor the banks on its watch. I think that is probably one argument for the merger which I can sort of relate to.
3. Big Ticket Loans possible by Merged Entity: Having bigger entities enables people to make bigger loans, which would give them a degree of pricing power vis-a-vis corporates because corporates have been playing one bank off against the other under the multiple banking system. To the extent that you combine banks and they do a bigger amount of funding, it does improve the bargaining position of the bank.
4. Increased Income Possibility: Fee income that the banks get from selling mutual funds and insurance products can go up, because now the banks can command a much larger network and therefore demand a bigger commission from the people whose products they’re selling.
5. Trigger Private Sector Consolidation: The other thing which it can trigger is some consolidation in private sector banks. Because the private sector banks would now be falling behind in terms of scale compared to some of these banks. And therefore, to some extent, this can force the private sector banks to think of a similar consolidation.