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Merged bank and rise in NPAs
Why in the news ?
- According to the India Ratings, the proposed merger of three public sector banks, Bank of Baroda, Vijaya Bank and Dena Bank could lead to rise in NPAs in the short-term.
- However, the Rating said the merger is expected to result in better operating efficiency in the long run.
More in news
- Findings of the India Ratings :
- The merged entity may see reduced operating costs, lower funding cost and strengthened risk management practices.
- Merger will see increase in the scale and reach moderately.
- However, in the short-term, the slippages could increase as recognition of non-performing assets is harmonised and accelerated.
- The asset-liability mismatch of the smaller banks (Vijaya and Dena Banks) can be better addressed at the consolidated level.
- The success of the proposed merger could impact the incremental capital ask from the government.
- It may also act as a roadmap for further consolidations in the public sector banking space.
Source
The Hindu