New Union Bank CMD in favour of M&As

There is a need for consolidation in the banking industry, said K Cherian Varghese, the newly appointed chairman & managing director of Union Bank of India.

Varghese's comments gain significance in the backdrop of the proposed merger between Union Bank of India and Bank of India.

The finance ministry is believed to working on a proposal to merge the two public sector banks and form the second largest commercial bank in India as a test case for consolidation in the banking industry.

Varghese refused to comment on the specific merger proposal. He addressed his maiden press conference as the head of Union Bank of India today with the inauguration of the bank's 500th branch under the core banking system.

He further added, "Consolidation will lead to economies of scale and optimisation of costs. It will catapult Indian banks into the global arena."

The consolidation debate has been on for a couple of months now with every public sector bank chairman proclaiming that he wants to acquire a bank. Varghese in his earlier stint as head of Corporation Bank had even passed a board resolution empowering him to look for a suitable bank to take over.

He said the liquidity situation in the market was comfortable considering the volumes in the reverse repo window. Reverse repo, the facility where in banks give funds to the Reserve Bank of India (RBI) in exchange for securities, has witnessed volumes ranging from Rs 5000-10,000 crore last week. According to him, interest rates will remain stable in the near-term.

Union Bank has already covered 60 per cent of its business under the core banking system and plans to cover nearly 70 per cent by March 2005, by which time 700 branches will be under the core banking system.

The bank has an 280 ATMs across 125 centres and an extensive branch network of 2,022. This year it plans to add 70 new branches which is more than triple the yearly addition of 20 branches.