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    Merger of public sector banks will be positive for banking system, says Moody’s

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    Merger of public sector banks will be positive for banking system, says Moody’s

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    With regards to the big bank merger between Bank of Baroda, Vijaya Bank and Dena Bank, ratings agency Moody's on Tuesday said that the move will be credit positive as it will provide efficiencies of scale and help improve the quality of corporate governance for the banks.

    With regards to the big bank merger between Bank of Baroda, Vijaya Bank and Dena Bank, ratings agency Moody's on Tuesday said that the move will be credit positive as it will provide efficiencies of scale and help improve the quality of corporate governance for the banks.
    CNBC-TV18 spoke with Alka Anbarasu, vice president - financial institutions group at Moody's Investors Service about the agency's view on the merger.
    According to Anbarasu, there are three aspects to the merger.
    "One, this merger will give BoB significant scale benefit. The merged entity would become second largest bank in system by deposits and third largest by loans. Two, because of the size the merged entity would become meaningful and more important for government and in turn the government would pay closer attention to improving operational efficiencies of board and management team and the entity will benefit from good corporate governance. Three, although the financial metrics of the banks are different at the moment, but from financial aspect if the government provides sufficient capital to these banks, their capitalization levels can improve," she said.
    “Put together on a consolidated basis, while the banks may meet the regulatory capital requirement, they will require capital support from the government to fund growth,” Anbarasu said.
    She said that for a long time the house has maintained that the merger of public sector banks will be positive for banking system.
    “Bringing down the number of PSU banks perhaps to high single digit can be positive for the banking system. So, consolidation of banks will be positive in the long-term,” she said.
     
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