Though there is much talk on the prospects of forming mega banks in the Indian public sector through mergers and acquisitions that would provide them with the size and reach to compete, the task is not easy.
Joint ventures involving partners could trigger a maze of questions that need to be resolved for this to take place, say industry executives.
Leading banks like Punjab National Bank have subsidiaries of individual entities set up with joint venture partners. The government may have to chalk out an elaborate plan aimed at the management of such subsidiaries in order to facilitate consolidation measures, say government and banking sources.
“To carry out mergers in PSU banks, the subsidiaries have to taken care of. With the present structure, consolidation may remain wishful thinking as several joint venture partners are competitors otherwise. A full plan has to be chalked out to deal with these subsidiaries before consolidation is carried out in the sector,” said a government source who did not wish to be identified said.
At his a recent meeting with PSU bank chiefs, finance minister Pranab Mukherjee stressed the need to initiate the merger exercise to create stronger banking entities.
A banking source told Hindustan Times that often joint venture subsidiaries involving private partners are in competition with each other.
For example, SBI Cards, the credit card division of State Bank of India, has been set up as a joint venture between SBI and GE Capital. PNB, on the other hand has launched its co-branded international credit card with HSBC.
Similarly, Canara Bank and Oriental Bank of Commerce have a life insurance venture in partnership with HSBC Life Insurance.
SBI is in the process of merging in its associate banks but that is likely to face more of union trouble than JV issues.
The All India Bank Employees’ Association said that it would hold nationwide strikes in case banks go ahead with mergers.