The finance ministry, which is pursuing the goal of creating global-sized banks in India, has asked four large state-run lenders to explore ways of acquiring their smaller peers, including mid-sized and small ones, reports quoting official sources said.
Reports cited the possibility of major public sector banks (PSBs) like Punjab National Bank, Bank of Baroda, Canara Bank and Bank of India acquiring other smaller PSBs.
Earlier reports had said Bank of Baroda and Canara bank could be acquiring some smaller banks to grow big as the government looks to create eight o 10 large sized banks, including private banks.
While the discussions are still informal, the finance ministry wants the PSBs to seriously pursue the merger and acquisition route, so as to reap advantages of scale and to ensure financial health.
The proposed mergers are also based on resources regional and geographical reach, financial burden and smooth transition of human resource, they said, adding there should not be merger of a very weak bank with a strong one "as it could pull the latter down".
However, the roadmap for mergers is still under development and a clear picture would emerge only after the Niti Aayog report on the second round of consolidation in the banking sector is released.
With all subsidiary banks of State Bank of India already merged with the parent, and the Bharatiya Mahila Bank (BMB) also becming part of SBI on 1 April, 2017, several independent PSBs are ripe for mergers and acquisitions.
While post merger SBI commands a combined customer base of around 370 million with a branch network of around 24,000 and nearly 59,000 ATMs across the country, other banks may not acquire the size post merger, unless they are all combined into one.
SBI now has a deposit base of more than Rs26,00,000 crore and advances of Rs18,50,000 crore.
However, another round of merger is unlikely until the problem of toxic assets, or non- performing assets (NPAs) situation is sorted out
Bad assets of public sector banks have risen by over Rs1,00,000 crore to Rs6,06,000 crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textile sectors.