Political interventions hinder bank M&As

Chiefs of public sector banks (PSBs) on Saturday put the onus of consolidation on the government, soon after finance minister P Chidambaram reiterated that PSBs themselves have to initiate moves for mergers.

Most chairmen of PSBs said, consolidation in the fragmented public sector banking system looks unlikely now as the current political dispensation would not allow it to happen. They also pointed out that the finance minister asked for support of banks' officers and employees for initiating merger deals among PSBs.

Speaking at the Indian Banks' Association's annual general meeting on Saturday, Chidambaram said the government had decided that the move for consolidation has to originate from the banks themselves, driven by the boards and "supported by officers and employees."

The finance minister said the banking sector displayed a high degree of fragmentation with the market share of the top five banks in India at 41.5 per cent against 75 per cent in China. "A fragmented banking sector is the antithesis of a profitable banking sector," he added.

India has 19 government owned banks and around 30 privately-owned banks. "With the entry of new private sector banks, the banking sector has become even more fragmented in the reform years since 1992. Public sector banks need to consolidate amongst themselves and with private-sector banks to survive increasing competition," Chidambaram said.

Union Bank of India chairman, Cherian Varghese said consolidation can only happen if it is directed by the government.

"Instead of giving banks the liberty to take initiatives in this context, it would be better that the regulator itself displays a larger interest in bringing about consolidation within the system," said M S Kapur, chairman of Vijaya Bank.

Industrial Development Bank of India chairman V P Shetty said "the big players in the banking industry haven't triggered any consolidation so far. M&As will certainly happen over the next couple of years. At this point of time, it is more of a compulsion to consolidate the banking sector."

Allahabad Bank chairman, O N Singh, said the overall scenario of mergers among PSBs may look conducive but nothing concrete is seen happening, whereas Corporation Bank chairman V K Chopra said it has become imperative for the board of directors to get increasingly sensitised on the requirement of bringing about consolidation between players within the industry.

K N Prithviraj, chairman of Oriental Bank of Commerce, said "public sector banks are currently entering into alliances to set up joint ventures for overseas operation and once this concept takes off, the marriages will follow."