The collapse of major financial institutions in the US has taken its toll on the banks’ consolidation process in India. Weeks after the boards of State Bank of India and State Bank of Indore approved the merger of the two banks, and the finance ministry sent the proposal to the Cabinet, the government has put the proposal on hold and sought more clarifications before giving a final go ahead.

“The Cabinet has sought some more clarity,” a government official told The Indian Express, refusing to elaborate on the clarifications sought. India’s largest bank, the State Bank of India (SBI), had initiated merger talks with its associates last year. While State Bank of Saurashtra has been completely absorbed by SBI, its latest proposal to merge State Bank of Indore with itself has hit a road block. SBI has plans to absorb six other associates banks as well.

The finance minster had recently emphasised on the need for consolidation in this sector but at the same time said that banks have to take the initiative in this regard. However, now the government seems to be taking a more cautious approach and probably wants the recovery to set in before allowing banks to merge.

SBI chairman OP Bhatt had recently emphasised the need for bigger banks in the country that can fund the needs of a globalising Indian industry. “India needs at least four banks of the size of SBI, and two banks that will have global scale. One way of getting size is to push for consolidation as fast as possible,” Bhatt had said in Mumbai a few weeks back.

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