Number of PSBs may go down to 12 as govt mulls consolidation

The number of India's public sector banks is expected to come down to around 12 from the current 21, with some banks assuming global size, as the government pursues a consolidation agenda for the banking sector that is laden with non-performing loans.

The 21 public sector banks would get consolidated to 10-12, while also creating 3-4 global-sized banks, in the medium term, reports quoting official sources said.

The plan is to retain some region-based banks and dome midsized banks while merging other banks into larger entities, forming a three-tier structure of medium, large and very large banks, according to official sources.

Accordingly, some region-centric banks like Punjab and Sind Bank and Andhra Bank will continue as independent entities with some mid-size lenders retaining their present status.

Finance minister Arun Jaitley had last month said the government was "actively working" towards consolidation of public sector banks but declined to provide details, saying it was a price-sensitive information.

Speculation was that large public sector banks like Punjab National Bank, Bank of Baroda, Canara Bank and Bank of India could try looking for potential candidates for acquisition.

Factors like regional balance, geographical reach, financial burden and smooth human resource transition have to be looked into while taking a merger decision, they said, adding a very weak bank should not be merged with a strong one ''as it could pull the latter down''.

SBI chief Arundhati Bhattacharya had also spoken against merging weak banks with strong banks as it woud hurt performing bank's future performance.

''There can't be a one-size-fits-all approach, and the temptation to merge the weaker ones with the stronger ones should be resisted as it leads to the stronger one losing strength,'' she had said.

In the last consolidation drive, five associate banks and Bharatiya Mahila Bank (BMB) became part of SBI on April 1, 2017, catapulting the country's largest lender to among the top 50 banks in the world.

The finance ministry is now considering clearing another such proposal by this fiscal if bad loan situation comes under control by then.

According to former RBI governor C Rangarajan, the system will have some large banks, some small banks, some local banks and so forth.

"What is needed in the system is variety," Rangarajan said.

One of the possibilities is that large public sector banks (PSBs) like Punjab National Bank, Bank of Baroda, Canara Bank and Bank of India could try looking for potential candidates for acquisition, another official said, who did not wish to be identified.

Factors like regional balance, geographical reach, financial burden and smooth human resource transition have to be looked into while taking a merger decision, they said, adding a very weak bank should not be merged with a strong one "as it could pull the latter down".

In the last consolidation drive, five associate banks - State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT) - besides BMB and Bharatiya Mahila Bank (BMB) became part of SBI on April 1, 2017, catapulting the country's largest lender to among the top 50 banks in the world.

With the merger, the total customer base of SBI reached around 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs across the country. The merged entity began operation with deposit base of more than Rs26 lakh crore and advances level of Rs18.50 lakh crore.