NEW DELHI: The government is expected to launch the public sector bank consolidation exercise by merging yet another State Bank associate with its parent even as it looks to create eight to ten large state-run lenders through a merger of nationalized banks.
Sources said the issue was discussed at the Gyan Sangam and the message from North Block was clear that it wants to drive consolidation instead of waiting for lenders to move at their own pace. Instead of a bottom-up approach, the strategy is likely to be top-down, with at least a few mergers taking place before the next edition of the annual retreat of public sector bank chiefs.
The government has been discussing consolidation for over two decades but has made little progress. Various options have been discussed such as merging smaller and weaker entities with larger players and looking at the geographical spread of a bank to decide the candidate for its merger. But things stand where they were as successive governments did not have the political will to execute the decision, barring the merger of two associate banks — State Bank of Saurashtra and State Bank of Indore with the parent.
But faced with a rising capitalization burden to ensure that government holding stays above 51 per cent, amid mounting bad debt and losses at several state-run lenders, the Narendra Modi-led government is now pushing for consolidation.
Sources said one of the five remaining associate banks are likely to be first off the block, with State Bank of Patiala and State Bank of Hyderabad, where SBI owns the entire stake, being the low-hanging fruits.
In case of nationalized banks, the government is expected to constitute a committee to deal with various aspects of consolidation, in addition to taking inputs from the Bank Board Bureau under former CAG Vinod Rai, which will commence operations from April. The expectation is that some of the larger entities such as Bank of Baroda, Punjab National Bank, Union Bank of India and Bank of India will be asked to take over the weaker entities like Uco Bank, United Bank of India and Dena Bank.