New Delhi: State-run banks feel that fragmentation of the banking industry is not good, State Bank of India (SBI) chairman Rajnish Kumar said on Monday, while answering a question on possible consolidation in the sector.
Consolidation is expected to help create more globally competitive banks that can meet credit requirements of the Indian industry, but entails risks in integration and synergies in operations like information technology systems and human resource practices.
Consolidation talks have gained pace after 11 of 21 state-run banks came under the Reserve Bank of India’s prompt corrective action, which places restrictions on lending.
Also, state-run banks reported huge losses in the quarter ended 31 March that threatened to wipe out the entire government capital infusion into these banks. In the March quarter, 19 of 21 state-run lenders announced losses totalling ₹ 62,681 crore, as a result of rising provisioning requirements for bad debts as well as increasing number of frauds.
Addressing a press conference after a meeting of bankers with finance minister Piyush Goyal, Kumar pointed out that even after a merger of four state-run banks, they will still fall short of SBI’s size.
Kumar said consolidation has its pros and cons and will require more deliberation among state-run banks. “State-run banks are fragmented as of now. Banks have agreed that this kind of fragmentation is not good."
Mint had reported on 4 June about the possibility of the government considering a merger of three smaller banks with Bank of Baroda.
“I have shared our experience. The possible pitfalls, advantages and challenges of a merger."
Last year, SBI had completed a merger of five subsidiaries—State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore— besides Bharatiya Mahila Bank Ltd with itself.