Under the mega merger scheme of PSU banks, 10 banks will be consolidated into 4 banks. But the real question that arises is, whether merging banks can solve the problem that the industry has been facing for several years. Siddharth Purohit, research analyst, Institutional Equities at SMC Global Securities, says probably the NPA issues will not improve purely due to merger but one can be assured that at least post consolidation the NPA crisis will not escalate further.
PSU banks have been losing market share to private banks and despite the government’s support in the form of capital, the near term scenario remains challenging. How will the PSU banks’ balance sheet look post-merger? Responds Purohit: “While the capital position of PSU banks is likely to improve post-merger and capital infusions by the government, the medium term challenges are likely to persist. I feel they are likely to underperform versus their private peers. While the slippages have been under control for PSU banks, the high exposure in telecom and NBFC sectors, which are reeling under pressure, makes me feel that the trouble is not over for the PSU banks and provisions could remain high for few more quarters.”
Most private banks have taken a one-time write down on their stock of deferred tax assets during Q2FY20 and are migrating to the new marginal tax rate of 25-26% from Q3FY20. Ravikant Bhat, research analyst, IndiaNivesh Securities, feels most private banks that were paying the highest marginal tax rate are benefiting from the reduced corporate tax rate. “This shall directly boost their profitability, RoE, and in turn help sustain better core equity capital,” he says.
BEST-FIT POLICY
This story is from the November 2019 edition of Banking Frontiers.
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This story is from the November 2019 edition of Banking Frontiers.
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