FinMin asks PSBs to explore acquisition of smaller banks – Number of PSBs may go down to 12 as govt mulls consolidation

The finance ministry has asked four large PSU lenders to explore opportunities for acquisition of small and mid-sized banks with a goal to create global sized lenders, sources said.

One of the possibilities is that large public sector banks (PSBs) like Punjab National Bank, Bank of Baroda, Canara Bank and Bank of India could try looking for potential candidates for acquisition, they said.

So, informally, the finance ministry has sounded them that they should study the possibility for mergers and acquisitions so as to acquire scale and size of State Bank of India (SBI), the sources added.

The government is working on a consolidation agenda with a view to creating 3-4 global-sized banks and reduce the number of state-owned lenders to about 12. The 21 public sector banks would get consolidated to 10-12 in the medium term.

As part of a three-tier structure, the official said, there would be at least 3-4 banks of the size of SBI, the country’s largest lender.

Some region-centric banks like Punjab and Sind Bank and Andhra Bank will continue as independent entities while some mid-size lenders would also co-exist, the official added.

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, they said, adding there should not be merger of a very weak bank with a strong o

ne “as it could pull the latter down“.

Enthused by the success of SBI merger, the finance ministry is considering clearing another such proposal by this fiscal if bad loan situation comes under control by then.

However, the clear picture would emerge only after the Niti Aayog report sets the tone and tenure of the roadmap for the second round of consolidation in the banking sector.

Source: Business Line

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