Bank Merger - Impact on Credit Growth

Abstract

The Govt of India has an ambitious target of making India a $5 Trillion economy by 2027. In order to achieve this objective and to adapt BASEL III norms, EASE reforms were introduced by the Govt of India in 2018. PSU bank mergers is one of the agenda of EASE reforms. Individually, at bank level, PSU Bank mergers have created synergies, brought cost efficiency, rationalized presence of Banks and enabled the PSU Banks to grow big in size. It has also reduced unwarranted competition among peer banks. However, on comparing credit growth and GDP growth in pre merger era vs post merger era, it is observed that growth is constant in both eras. We expect the Govt of India to bring in more EASE reforms in this regard to enable credit growth as well as GDP growth.