Govt kicks off talks on bank consolidation

The government today started the process of consultation for the consolidation of public sector banks.

Sources said finance ministry officials met the chairmen of the five largest nationalised banks — Punjab National Bank, Canara Bank, Bank of Baroda, Bank of India and Union Bank of India — to help the government prepare a roadmap. Nationalised banks refer to private banks that the government took over.

“It was a free-wheeling discussion at which we wanted to get the banks' perspective on the pros and cons of consolidation and how we should go about it,” a source privy to the discussions told Business Standard.

Bankers told the finance ministry officials that as the majority owner, the government should consider issues such as geographical synergy, culture and a technological fit before deciding on alliance partners.

Although the government has been talking of bank consolidation for over half-a-decade, the earlier Manmohan Singh-led alliance could not go ahead with the move, owing to opposition from the Left parties.

Since the Left is not part of the second United Progressive Alliance government, the process is gaining momentum. Finance Secretary Ashok Chawla is driving the initiative and preparing a concept note.

The government's task is also expected to be easier with 10 bank chiefs due to retire in 2010.

The sources said the plan was to create eight to 10 large public sector banks against 27 at present. Possible merger candidates are yet to be finalised, though banks would be free to decide who they wanted to acquire.

The government’s resolve to push through consolidation seems to have been strengthened following State Bank of India's successful merger with State Bank of Saurashtra, one of its associate banks. The country’s largest bank is in the process of merging another associate bank, State Bank of Indore, with itself, for which shareholder approval is being sought.