The four mega bank mergers of the state-owned (PSU) banks that the government announced last week will not lead to better asset quality and profitability of the merged entities, Moody's investor services has said.
The rating firm said that the mergers which it expects to be completed by the middle of the next year will significantly alter the structure of PSU banking but the "asset quality and profitability will remain broadly unchanged after consolidation".
"PSU banks already score poorly on these two factors, and there is no reason to assume that the merged entities will make significant improvements in these metrics," it said.
However, the consolidation plan, Moody's said will have larger operating scale, which will result in improved competitiveness in corporate banking and retail lending, where their market share is low.
A larger scale will also enable PSU banks to increase technology investment, which is an area where they have lagged their private sector peers. However, these benefits will not be realized until the medium term, it added.