As the government and Reserve Bank of India prepare to open up India’s banking sector and allow in more foreign banks and private sector entities, it appears that public sector banks are moving towards consolidation.
The State Bank of India is slowly moving towards merging all associate banks with itself. SBI, the largest bank in India, does not feature among top global banking entities. But once it subsumes all its associate banks, it would be among the global top 10 banks.
The government has reportedly asked SBI to do a detailed cost-benefit analysis of its merger with its five associate banks. State Bank of Saurashtra and State Bank of Indore have already been absorbed by SBI.
“These two cases have shown that there is no major hurdle in merging the remaining banks and we may take up the issue of consolidation among other state owned banks to create large sized banks,” a senior government official told HT.
The official said competition will intensify in the banking sector when a few foreign entities get full banking licences, and consolidation among government-owned banks would be critical to remain competitive.
The RBI has already approved the Dutch banking major Rabo Bank’s application for a full banking licence. Goldman Sachs has also been given a licence to undertake primary dealership business in debt from next week. An RBI committee is currently assessing the other applications for granting licences. “We will grant full banking licences to those entities that fulfil criteria,” said an RBI official.The unions of nationalised banks have called for a nationwide strike on July 7 to protest against the government move to outsource some banking activities, merge the associate banks of SBI and take a World Bank loan to capitalise public sector banks.