New Delhi: State Bank of India, India’s largest lender, said on Wednesday it is looking to grow through acquisitions and will start by taking over its associate banks, as the government said it would support consolidation in the sector.
SBI has six associate banks, including State Bank of Travancore, State Bank of Bikaner and Jaipur and State Bank of Mysore. Shares in the three listed associates all rose 5%, their maximum daily limit.
“As far as acquisition thorough inorganic route is concerned, our first priority is domestic,” chairman OP Bhatt told reporters ahead of a meeting of bankers with the finance minister.
“Within domestic, our priority is to see whether or not we should go ahead with further consolidation, merger and amalgamation of our own associates.”
SBI and its associates control about one quarter of Indian banks’ deposits and loans. Last year, it absorbed its unlisted associate, State Bank of Saurashtra.
During the meeting, finance minister Pranab Mukherjee said consolidation of banks was desirable to improve competitiveness and to mitigate financial risks.
“(State-run banks) should look at consolidation as a serious option in order to reduce risk to financial stability and to face competition,” he said in a statement afterwards.
“Any consolidation initiative in the banking sector would be viewed positively and government, as a majority shareholder, would continue to play a supportive role in this process.”
Bhatt said once the government approved of the mergers, it would not take more than six months to complete the process.
Banking unions, backed by India’s communist parties, have generally opposed mergers of state-run banks, fearing job losses. Analysts say the likelihood of reforms in sectors such as banking has risen after the Congress-led coalition government was returned to power with a decisive mandate last month.
Shares in SBI ended down 0.4% at Rs1,756.75. The banking index was up 2.5% while the broader market rose 2.25% to a 10-month closing high.