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 Mergers of small banks may hurt credit sourcing for micro, small and medium enterprises (MSME) sector as bigger banks are less motivated to work with MSMEs on loans due to smaller business accounts, says a report.

A report from financial services firm Resurgent India said that “The disadvantages of big banks are that services are less personable and local people abstain from reaching out to them. There are more fees associated with bigger banks.”

“And, bigger banks are less motivated to work with MSMEs on loans due to smaller business accounts,” it added.

Mergers of smaller banks into big will hurt credit sourcing for MSMEs, as smaller banks will be losing their identity, Resurgent India Managing Director Jyoti Prakash Gadia.

Meanwhile, following the successful State Bank of India merger the government is reportedly looking at merging some of the 21 public sector banks into 10-12 banks in the medium term.

However, bank unions feel this may not necessarily help strengthen the balance sheets of the beleagured public sector banks. The banks union, All India Bank Employees Association, is even planning to go on strike on August 22 to protest against this move, among other demands.

AIBEA had earlier said that “What purpose will it serve? What kind of banks are being looked at for the merger? There are many questions. The weakness in the banks is due to bad loans. The solution is by resolving those and getting recovery."

AIBEA has said that mergers will not at all make them stronger.

The government along with the Reserve Bank of India are working towards resolution of non-performing assets (NPAs) by sending top large defaulters to insolvency courts on a priority basis. 


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