State-run banks may consider merger as an important option to sustain growth, rating firm Credit Analysis and Research Ltd (CARE) said on Thursday.
Banks, unable to dilute stake to raise capital because government’s ownership was close to required lower level of 51 percent, may consider the option, the rating agency said in its first report on the sector.
"Public sector banks with lower level of government stake and having concentrated presence in particular region may consider merger as an option to sustain growth," Rajesh Mokashi, executive director, CARE said.
The report also said net non-performing assets (NPAs) to net advances would rise to 2.7-3 percent by end of FY11 on increased slippages from retail loans like housing loans.
The study also estimates a slower loan growth of 15-17 percent in 2009/10, and a relatively better growth of 19-21 percent in 2010-11.
Loan growth in Indian commercial banks had shrunk to 17.20 percent as on May 8, from 24.01 percent on Jan. 2, following the downturn, Reserve Bank of India data showed.
State-run banks are expected to record higher loan growth with government pushing for cheap loans and their stronghold in corporate lending, Parag Jariwala, analyst with CARE, said.
With spread between benchmark lending rates and deposits falling, the net interest margins would be under pressure in FY10 resulting in flat net profit growth for the banking industry in the current financial year, he added.
Source: Economic Times