2023-07-05 08:57:09
Mergers trending in the banking sector
India’s financial sector is going through a major consolidation phase. The merger of HDFC Limited and HDFC Bank came into effect on 1 July 2023. Now, another private sector lender, IDFC First Bank has announced a merger with IDFC. What is the vision behind these mergers and how will it impact shareholders? Let's find out.
Bigger business entities
As per experts, the mergers will help these banks become bigger business entities in domestic and global markets. For instance, the tie-up of HDFC Bank and HDFC Ltd has created a new entity, which is the world's fourth largest bank by market cap. These giant corporations will have a bigger client base, enhanced branch network and a say in the global business system.
Margin improvement
Furthermore, experts believe that after the merger, banks will have better control on their expenditure and create cost synergies across their branch networks. This may help improve margins and deliver better quarterly numbers in the coming quarters, leading to a positive impact on the stock price of the combined entity.
Ease in raising funds
Besides this, the merged entity would find it easier to raise funds because of its enhanced balance sheet and business prospects. Also, mergers will help companies improve their fundamentals and corporate governance standards as they emerge as too big to fail as a corporation.
With multiple factors in favour, these merger trends look quite promising for investors and customers. Will other banks too follow the same route? For that, we will have to wait and watch.
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