, 7 tweets, 2 min read Read on Twitter
A small thread on PSU bank merger announced recently

There is one big reason for any merger – Synergy. And that means laying off people. And shutting down branches where there are duplicities of presence and business. And both have been categorically denied by the finmin.
So what is the impact then?

1.Short story – NONE. It means nothing and achieves nothing. On the contrary, it significantly weakens Union Bank and Indian Bank, two of the strongest banks which have been merged with weaker ones in the current wave.
2. One of the key announcements is to recruit Chief Risk Officer from market at market -linked compensation. Given PSB’s salaries, how will they attract people from the market – More so, how will they bring parity with current senior management?
3. Theoretically, a lot of costs can be saved on infrastructure especially given the overlap in business and strong dominating presence in a few local markets. Likely scenario - IT consultants will have a field day syncing the IT systems of these banks and costs will go up.
4. Purely because of the above reason, operating ratios would worsen while they should strengthen ideally after any merger.
5. Book value dilution for current shareholders of Union and Indian bank is going to be significantly negative while not much impact for larger PNB. GoI and LIC will INCREASE shareholding in these banks after amalgamation, not decline
– PNB combined shareholding for GOI and LIC will move to 84% from 75%.

6. Overall, challenges in terms of management and union integration will increase and there will NOT be any material benefit from the merger – A double whammy in terms of friction costs increase!
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