The government today said there is need for public sector banks to look for mergers and acquisitions in the next 5-10 years to achieve optimum economies of scale.
"Subject to synergy, subject to reasonable similarity in culture, they (public sector banks) in the next 5-10 years really need to look at consolidation and merger," Finance Secretary Ashok Chawla said after launching the mobile banking service of Vijaya Bank here.
Merger is important so that they achieve balancesheet and asset size which corresponds to the need of country, he said.
To support growth of economy at 9-10 per cent, he said, size is very important, adding, it would not only help in meeting domestic transaction but multitude of international transactions.
"Size is important in today's world to achieve optimum economies of scale and therefore as a general prescription it would be good for the medium size banks to look at where there are synergies where there are cultural fits and carry forward the process of mergers and acquisition which is essential something which the banks and management have to take a call on," he said.
Chawla said, "It does not mean that mid-cap banks have to look at larger banks, two medium-size banks can look at each other, two reasonably large banks can look at each other."
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"So there are 2-3 different broad categories from each of those categories you need bigger and stronger banks. That's how it should be," he said, adding, it's not going to happen in a day.
It is to be noted that State Bank of India is planning to acquire its associate, State Bank of Indore. The boards of the respective banks have already given in-principle approval for the merger in June this year.
SBI initially had seven associates and with the merger of State Bank of Indore, the number would come down to five. State Bank of Indore is the smallest associate bank of the SBI Group after the merger of State Bank of Saurashtra.
Asked out the SBI and State Bank of Indore merger request, Chawla said, "It's being processed. There is nothing to say that we have not given approval...We are not going to give approval."
''It takes some time. Merger don't happen overnight," he said.