MUMBAI:  International brokerage CLSA Asia Pacific Markets said that consolidation is a positive for small-sized and weaker public sector banks, but could possibly an “overhang” for their larger-sized peers due to the challenges of integration and dilution of franchise.

On SBI’s proposed merger plans, CLSA said the key synergies could arise from integration of branches, but the challenge will be integration and retrenchment of staff and alignment of wages and pension liabilities.

According to CLSA, challenges for public sector banks emanate from large and unionised staff, and as some of the ‘weaker’ public sector banks are ‘large banks’ in terms of size of branches, employees, and balance sheets. The brokerage also said the government is looking to merge 27 public sector banks into five to seven large banks.