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Risks in merged banks more than in unmerged ones: RBI report

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Risks in merged banks more than in unmerged ones: RBI report

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Even as systemic risks in the Indian banking sector have fallen sharply from the high levels seen during the first wave of COVID-19, the risks generated by merged state-owned banks was higher than of their unmerged counterparts, the Financial Stability Report released by the Reserve Bank of India showed, said a report by The Economic Times. The government had announced the merger of 10 public sector banks into four entities in 2019 to achieve higher operational efficiency gains and reduce lending costs.

Risks in merged banks more than in unmerged ones: RBI report
Although systemic risks in the Indian banking sector have significantly reduced from the elevated levels seen during the first wave of the COVID-19 pandemic, the risks generated by merged state-owned banks was higher than of their unmerged counterparts, the Financial Stability Report released by the Reserve Bank of India showed.
The RBI analysed the daily stock returns of 32 bank stocks for each calendar year since 2011 to assess the systemic risk levels in the sector, The Economic Times reported.
The Centre had announced the merger of 10 public sector banks into four entities in 2019 to achieve higher operational efficiency gains and reduce lending costs.
Following the announcement, Andhra Bank and Corporation Bank were merged with the Union Bank of India, Allahabad Bank was merged with Indian Bank, Syndicate Bank was merged with Canara Bank and United Bank of India and Oriental Bank of Commerce were merged with Punjab National Bank.
The merger came into effect from April 2020. Prior to this, Dena Bank and Vijaya Bank were merged with the Bank of Baroda in April 2019 and associate banks of State Bank of India (SBI) were merged with the anchor entity.
Meanwhile, the finance ministry recently informed Parliament that profitability of public sector banks had improved post the mergers, BusinessLine reported.
In reply to a question in the Rajya Sabha, Pankaj Chaudhary, Union Minister of State for Finance, said Bank of Baroda posted a profit of Rs 828.96 crore in FY2020-21 against a loss of Rs 8,339.27 crore in FY2018-19 following the amalgamation of Vijaya Bank and Dena Bank with the major bank.
Similarly, Punjab National Bank posted a profit of Rs 2,021.62 crore in FY2020-21 from a loss of Rs 8,310.93 crore in FY2019-20.
Meanwhile, the RBI’s Financial Stability Report said that even in a severe stress scenario, the capital levels of Indian banks would remain above the prescribed minimum level of 9 percent, the ET report said.
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