Bank consolidation back on the table

The finance ministry is du?sting off merger proposals of public sector banks and has started weighing opt?ions to create few more ba?nks of the size of SBI, sources said.

The country’s largest le?n?der State Bank of India last month had made presentation twice before he?ads of other public sector lenders to share its experience of consolidation of five SBI associate banks and Bh?aratiya Mahila Bank with itself.

The presentation talked about advantages and challenges of merger but it also highlighted that fragmented approach of the banks is acting as an impediment in their growth. Various permutation and combinations are being examined, sources said, but added that no decision has been taken yet.

With regard to IDBI Bank stake reduction, sources said some positive development has already taken place.

Last week, insurance regulator Irdai permitted LIC to pick up 51 per cent stake in IDBI Bank as part of transformation of the lender.

Last year, the department of financial services had written to all heads of PSU lenders informing them the government's decision to set up a ministerial panel to facilitate consolidation in the public banking space.

The government has be?en nudging the state-owned lenders to go for merger so that there can be fewer and stronger banks. The ministry wants banks to undertake an internal exercise for the best match and come up with the merger idea for the alternative mechanism set up for the purpose. The banks should analyse regional balance, geographical reach, IT compatibility, financial burden and human resource transition while fir-ming up the merger proposal for the ministerial panel.

The cabinet in August decided to set up the alternative mechanism to oversee proposals for expeditious consolidation of PSBs to create larger and stronger bank.