Financial Stability of Indian Public Sector Banks: A Systematic Review of Pre- and Post-Merger

The consolidation of Indian Public Sector Banks is one of the biggest structural reforms in the banking sector of the country. The policy was supposed to make banks stronger, make banks more efficient, strengthen capitalisation, deal with stressed assets, and strengthen the banking system's resilience. The systematic review shows, however, that size is not a determinant of financial stability. The literature is inconclusive on the effects of mergers on profitability, asset quality, capital adequacy, efficiency and overall health. Some studies show benefits, and other studies have found that the financial-health situation of public-sector acquirers has worsened during the first few years following their acquisition. The inconsistent results suggest that merger has context-dependency. Outcomes can be affected by the financial condition of the acquiring and target banks, asset quality, integration costs, governance, operational efficiencies, macroeconomic conditions, and by the length of the post-merger observation period. So, there was a solid academic and policy need to do an empirical study on “Financial Stability of Selected Public Sector Banks (PSBs): Pre and Post Merger in India”. A study of this type can be relevant to existing literature if it analyzes selected PSBs in a uniform manner using a set of financial-stability indicators, as well as compares the financial position of PSBs before and after the merger over a sufficient time horizon.

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