Government may step in to create mega state-run banks

In a major shift in stance, the finance ministry has itself initiated discussions on mergers of public sector banks (PSBs) instead of leaving it to bank boards. Mahua Venkatesh reports.

In a major shift in stance, the finance ministry has itself initiated discussions on mergers of public sector banks (PSBs) instead of leaving it to bank boards.

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Though finance minister P Chidambaram has underlined the need to consolidate PSBs to create bigger behemoths, he has maintained that individual boards must take the initiative.

“The finance ministry is looking at the issue and this time it is quite possible that the government decides to take the initiative as the majority stakeholder and the owner,” an official source, who did not wish to be identified, told HT. However, the government’s role in the exercise is yet to be decided.

A recent report released by KPMG said that the merger exercise would not be possible without the intervention of the Reserve Bank of India and the government. Two healthy banks cannot voluntarily merge, the report said.

A chairman and managing director of a mid-sized government bank also said that the merger process has to be driven by the government. “There cannot be any merger of banks, until they are in trouble, on their own.”

“The 26 PSBs that we have may be better off merging. The need for two or three world size banks in an economy that is poised to become one among the five largest in the world is rather obvious.”