New Delhi: Efforts to consolidate 27 public sector banks into 8-10 large lenders create risks that could offset potential long-term benefits in the current weak economic environment, Moody’s Investors Service said. It said India’s banking system has witnessed an increase in non-performing assets since 2012, with many public sector banks having suffered significant deterioration in balancesheets as demonstrated by their asset quality metrics and capitalisation profile.
Its hypothetical analysis of acquisition of a weak bank by several larger PSBs pointed to a likely significant deterioration in credit metrics for the surviving entity, which underscored the current broad weakness in the system’s balancesheet.
“Adding to this financial pressure, all listed PSBs are now trading at a significant discount to their book value. This limits their ability to attract external capital to support potential acquisitions as doing so will be dilutive to current shareholders, particularly the Indian government,” it said.
