Mumbai: Three public sector banks — Corporation Bank, Indian Bank and Oriental Bank of Commerce — are forming an alliance that will allow them to collectively build loan assets as well as fee-based businesses.

The combined asset base of the three banks is Rs147,079 crore, higher than that of Punjab National Bank, the country's largest public sector bank after State Bank of India, which has assets worth over Rs400,000 crore.

The three banks are expected to sign a memorandum of understanding (MoU) soon. The CMDs of the three banks are meeting on September 15 to discuss and if agreed, to sign the MOU for strategic business association in identified areas, for mutual benefit, Corporation Bank said in a filing with the BSE.

The plan includes sharing branches, automated teller machines and even sharing of employees. The banks will also discuss expansion and branch location plans amongst themselves to exploit geographical and locational synergy.

The boards of Corporation Bank and Indian Bank have already cleared the proposal while the Oriental Bank board will take up the ahead of signing the MoU.

The business alliance would help the banks improve their pricing at a time when interest margins are thinning.

Banking analysts see the Corporation-Indian Bank-Oriental Bank alliance as prelude to a larger consolidation in the country's banking sector as suggested by finance minister P Chidambaram earlier this year.

Oriental Bank and Corporation Bank are listed while Indian Bank is planning an initial public offer early next year.