Banking needs consolidation

The government was not averse to mega merger of banks and financial institutions like IDBI and IFCI, if all stipulated norms of the Reserve Bank of India were met, Finance Minister P Chidambaram said today.

"Consolidation is the name of the game. If two banks satisfy the RBI norms, why should we be averse to mergers," Chidambaram said, when asked whether the government was open to mega mergers like IFCI and IIBI with IDBI.

He endorsed the Indian Banks Association's decision to set up a group to look into possible consolidation saying "it's a good idea and a voluntary exercise".

Referring to the international experience, Chidambaram said consolidation could lead to bigger and stronger entities. The finance minister made it clear that the government would not forcibly merge or stall banks and FIs including the proposed PNB-IFCI merger.

The finance minister said the government would leave the decision to the respective banks and Fis. "I will be present at the marriage to give my blessings," he said in a lighter vein to stress that the government would only be a facilitator and not intervene in any merger.

Chidambaram also dismissed a suggestion that the government was encouraging "backdoor nationalisation" of private banks.

Citing the case of the troubled Global Trust Bank to be taken over by the Oriental Bank of Commerce, he said "after the United Progressive Alliance government took over, we were vigilant from day one."

Acting on the information from sources, the government was monitoring GTB and "when we found it was a wobbling bank, we put a moratorium," he added.

Asserting that the merger of private banks with the PSU ones was mainly on the basis of economic rationale, he said "public sector banks have become very strong. Their balance sheets are strong... About 3-4 private banks are also strong but some private banks, which were adventurous, failed".