How Beneficial is the Merger of Public Sector Banks? | AICTE approved MBA college in Bangalore

Posted by Sushmita S On 26/05/2022 11:03:06

The bank merger is projected to make it easier to create strong and competitive public sector banks that can satisfy the credit demands of a rising economy, absorb shocks, and generate funds without relying too much on the state budget. It will boost the banking sector's efficiency and profitability.

Every decision made by the government is intended to improve and strengthen the system, but it cannot be disputed that it may contain weaknesses that cannot be predicted at the time the decisions are made or the detrimental impact that those decisions may have when applied at the grassroots level. As a result of this issue, the government implements continuous policy adjustments in order to strengthen the system. AICTE approved MBA college in Bangalore


  • Bad loans, also known as nonperforming assets (NPAs), are one of our banking system's most serious issues, impeding overall economic growth. The government has made an attempt to ensure that weaker banks are not pushed out of the market due to bad loans or non-performing assets (NPAs) by merging them with larger banks. Because the same borrower has taken loans from several banks, merging the banks will reduce legal and other ancillary costs. There have also been instances of rash financial decisions. Bank mergers will also maintain a lid on this by enforcing strict supervision and therefore lowering NPAs. Best MBA college in Bangalore
  • By merging banks, the banks will become bigger and better, as they will be able to serve a wider range of consumers than they already do. Customers will be able to get services through a single bank rather than having to go to multiple institutions. Because the amalgamated bank will benefit from synergies, having a large customer base will aid profitability. The united banks' business portfolios, asset quality, market capitalization, risk appetite, and risk management techniques will all be superior.
  • Even after so many years, Indian Banks have failed to have a global presence. There are several reasons for the same including the size of the balance sheet, inadequacy in the operations, not meeting the international banking standards, etc. Post-merger not only the banks will have a global presence but also will be able to be a prime part of the International banking system. In the pre-merger era, RBI had to manage a comparatively large number of banks thus making it a cumbersome task. Now with comparatively fewer banks to manage, RBI will be able to implement the banking standards followed by the developed economies and thus bringing Indian banks in line with the banks having an International presence. 
  • The post-merger period will drastically reduce operational costs. Banks will be able to reduce their overheads by saving money on treasury operations, audits, controls, technology, and management. Merging banks will allow them to combine their resources and use them more effectively and efficiently. The mergers will result in the rationalization of branches, as well as the reduction of roles and functions.


  • Internal conflicts and disagreements about promotions and other possible concerns may occur. Conflicts arise because different banks have distinct ideas and people with different backgrounds. People are concerned that their jobs may be lost.
  • Because separate banks employ different software platforms, integrating them with the amalgamated bank will be difficult. Financial consolidation, as well as other financial issues, will need to be considered.
  • According to legend, as a bank becomes enormous, it becomes difficult to manage its operations, and if the bank begins to fail, the entire economy is threatened. 
  • Experts believe that, despite the government's allocation of additional capital and drive for co-lending, loan growth will stall, as seen in previous mergers, which cannot be beneficial at a time when liquidity flow is severely constricted.

To sum up, mergers of public sector banks (PSBs) are expected to be beneficial for reasons such as increased profitability, operational cost rationalization, improved ability to deal with external shocks, reduced geographical concentration risk, increased capacity to invest in technology, and increased ability to raise capital from the market. However, trade union resistance, human resource integration, technology systems, accounting procedures, and other issues may arise. To accomplish growth and development while maintaining social justice, India needs a mix of well-run PSBs, small finance banks, Payment Banks, and private banks.

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