The RBI has paved the way over the next few years for banks to grow bigger, whether by themselves or through M&As. Says Ghosh: “There’s an understanding that big banks need to get bigger, as they are still not there internationally. Lower down too, mergers have to happen.”

The basic business of banking borrowing through deposits and lending through credit can only be profitable if costs are contained, which is best achieved by size. If Indian banks are to compete in an open environment, they have no choice but strive for size with efficiency.

‘Consolidation will happen’

Shailendra Bhandari MD, Centurion Bank of Punjab

On the need for M&As. Mergers are necessary. We have a lot of banks, but we don't have scale. Our largest bank, SBI, is ranked 84 in the world. Since there are many public sector banks, mergers will make sense. In the private sector, apart from three or four large banks, most don't have a national presence. Most of them, in fact, have limited strengths. So, for instance, they know how to do SME, but not retail. There's a need for them to come together, and learn and use the skills of different banks.

On when it will happen. The RBI is saying foreign banks can't do anything to local banks till 2009, which gives the latter a chance to get together. It wants promoters to reduce their stakes and raise more capital. Some attempted mergers landed in court. In India, non-economical, illogical reasons slow down mergers. That said, there's an understanding that even big banks need to get bigger to compete internationally. So, consolidation will happen.