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Bank mergers can have both advantages and disadvantages in terms of economic growth. Critically analyse.

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

6. Bank mergers can have both advantages and disadvantages in terms of economic growth. Critically analyse. (250 words)

Difficulty level: Tough

Reference: Economic TimesInsights on India

Why the question:

The article discusses the potential merger of HDFC Life and HDFC Ergo in India and how investors are currently taking a wait-and-watch approach towards the merger.

Key Demand of the question:

To write about the role of bank mergers in economic growth.

Directive word:

Critically analyse – When asked to analyse, you must examine methodically the structure or nature of the topic by separating it into component parts and present them in a summary. When ‘critically’ is suffixed or prefixed to a directive, one needs to look at the good and bad of the topic and give a balanced judgment on the topic. 

Structure of the answer:

Introduction: 

Begin by giving the context of bank mergers in India.

Body:

Firstly, explain the rationale behind bank mergers.

Next, write about the how bank mergers will improve economic growth – more credit flow, consolidated holding, strong financial health etc.

Next, write about the limitation which does not leading to banking mergers translating into economic growth – overleveraged banks, lack of coordination between newly merged banks etc.

Conclusion:

Conclude with a balanced opinion forward.