The State Bank of India, the country's largest lender by assets, today said that it is looking to grow through amalgamation by taking over its associate banks, as the government has said it will support consolidation in the banking sector. It may also look at other acquisitions.

SBI has six associate banks - State Bank of Travancore, State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Indore and State Bank of Patiala.

"As far as acquisition thorough the inorganic route is concerned, our first priority is domestic," chairman O P Bhatt told reporters ahead of a meeting of bankers with the finance minister. "Within domestic, our priority is to see whether or not we should go ahead with further consolidation, merger and amalgamation of our own associates."

SBI and its associates control about one quarter of Indian banks' deposits and loans. Last year, it absorbed its unlisted associate, State Bank of Saurashtra.

"We have six more associate banks, and we are waiting to get a signal from the government. We will take appropriate action based on that. We will formulate our views within the next month or so on consolidation," Bhatt said.

According to The Wall Street Journal, SBI could start merging the associate banks with itself by September. "To start with, State Bank of Indore and State Bank of Travancore may be merged with SBI in the first phase," an unnamed official reportedly said.

Finance minister Pranab Mukherjee said consolidation of banks was desirable to improve competitiveness and to mitigate financial risks. "State-run banks should look at consolidation as a serious option in order to reduce risk to financial stability and to face competition," he said in a statement after the meeting.

"Any consolidation initiative in the banking sector would be viewed positively and government, as a majority shareholder, would continue to play a supportive role in this process," he added.

Bhatt said once the government approved of the mergers, it would not take more than six months to complete the process.

Banking unions, backed by India's communist parties, have generally opposed mergers of state-run banks, fearing job losses. However, Bhatt said that "About 90 per cent of the staff (in the associate banks are in favour of a merger."

On another note, Bhatt said SBI lender would take a decision on further lowering lending and deposit rates this month. "We will address it (lowering interest rates) in our asset liability committee meeting," he said.

The bank will continue with its softer interest rate regime, in line with similar measures by other banks in the country, he added.

Bhatt said the bank would target credit growth of 20 per cent in the first half of the current fiscal year that began in April.