The government is working on a consolidation agenda with a view to creating 3-4 global size banks and reduce the number of state-owned lenders to about 12, an official said. The 21 public sector banks would get consolidated to 10- 12 in the medium term, the official added.
As part of a three-tier structure, the official said, there would be at least 3-4 banks of the size of SBI, the country’s largest lender.
Some region-centric banks like Punjab and Sind Bank and Andhra Bank may continue as independent entities while some mid-size lenders would also co-exist, the official added. Last month, Finance Minister Arun Jaitley said the government is “actively working” towards consolidation of public sector banks but declined to provide details, saying this was a price-sensitive information.
Enthused by the success of SBI merger, the finance ministry is considering clearing another such proposal by this fiscal if bad loan situation comes under control by then.
According to former RBI governor C Rangarajan, the system will have some large banks, some small banks, some local banks and so forth. “What is needed in the system is variety,” Rangarajan said. One of the possibilities is that large public sector banks (PSBs) like Punjab National Bank, Bank of Baroda, Canara Bank and Bank of India could try looking for potential candidates for acquisition, another official said, who did not wish to be identified. Factors like regional balance, geographical reach, financial burden and smooth human resource transition have to be looked into while taking a merger decision, they said, adding a very weak bank should not be merged with a strong one “as it could pull the latter down”.