After advocating consolidation for over five years without any voluntary response from state-owned banks, the government has finally stepped in to infuse momentum in the process. It has called chairpersons of the country’s six big public sector banks — Punjab National Bank, Bank of Baroda, Union Bank, Bank of India, IDBI Bank and Central Bank of India — next week to kickstart discussions on possible mergers and acquisitions.

“We reckon it will be a long-drawn process. For now, we are inviting six big banks to understand their views. After this, we will invite mid-sized and small-sized banks to hear their apprehensions, if any,” an official said. Another senior official said that instead of forming a committee, it was felt that an informal dialogue with banks would be a more practical approach.

While finer details will emerge slowly, the government is calibrating ways to merge small and mid-sized banks with the larger ones. Besides cultural and other similarities, a bank’s geographical presence will play a key role. For instance, if a bank has substantial presence in North India, then ideally a small or a mid-sized bank will be chosen that has greater presence elsewhere, he said.

The chairman of a state-owned bank, who did not wish to be quoted, said, “Unless the government (the owner) steps in, consolidation will never happen.”

Consolidation of banks is a sensitive issue. Small banks are apprehensive of losing their identity and bigger banks, on the other hand, want a clear plan before the exercise starts in right earnest.

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