Fresh from the successful merger of five associates with SBI, the government is looking to consolidate more public banks going forward, with an aim to create only a few lenders of global size and scale.
The finance ministry, according to an official, "will soon undertake a broad study on further consolidation and look at various options for merger among the remaining 21 public sector banks".
There are factors like regional balance, geographical reach, financial burden and smooth human resource transition that have to be looked into while taking a merger decision, the official said, adding that there should not be merger of a very weak bank with a strong bank "as it could pull the latter down".
"There are some low-hanging fruits. For example, Punjab and Sind Bank can be merged into Punjab National Bank. Big lenders like Bank of Baroda can take over some turnaround banks in the southern region such as Indian Overseas Bank. Dena Bank could be merged with some large South Indian bank," the official explained.
The merger process will get a boost with the likely improvement in the NPA (non-Performing Asset) situation over the next two quarters, the official said, adding that "some movement on this front would begin soon".
Toxic loans of public sector banks rose by over Rs 1 lakh crore to Rs 6.06 lakh crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textile sectors.
Last week, RBI Governor Urjit Patel said Indian banking system could be better off if some public sector banks are consolidated to have a fewer but healthier entities as it would help in dealing with the problem of stressed assets.
"As many have pointed out, it is not clear that we need so many public sector banks. The system could be better off if they are consolidated into fewer but healthier banks," Patel said.
The merger proposals in the banking sector would require clearance from the Competition Commission of India (CCI), the ministry official added.
In the last consolidation drive that saw the light of day earlier this month, CCI nod was needed only in the case of merger of the Bharatiya Mahila Bank (BMB) with the State Bank of India (SBI). There was no such requirement for merger of associate banks with SBI as they were part of the parent.
Five associates and BMB became part of SBI on April 1, 2017, catapulting the country's largest lender to among the top 50 banks in the world.
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, were merged with SBI.
With the merger, the total customer base of the 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 Rs 26 lakh crore and advances level of Rs 18.50 lakh crore.
The government in February had approved the merger of these five associate banks with SBI. Later in March, the Cabinet approved merger of BMB as well.
SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged with it.