Banking consolidation is inevitable: FM

Banking consolidation is inevitable: FM

Finance Minister P Chidambaram today revived the debate on amalgamation of public sector banks saying some consolidation is inevitable as Indian banks would vie for the top slot in the global banking system in the next few years. He also advised banks to be different from each other and assured the finance ministry would not attempt to impose any uniformity.

“We should not fear consolidation. I know there is high anxiety but ultimately some consolidation will have to take place in the banking system in this country. We must create at least two or three world size banks,” Chidambaram said at the inaugural session of Bancon 2012 here.

The finance minister said China has done it and if India wants to be the third largest economy in the next 15 years it must have one or two world size banks.

Later talking to reporters, Chidambaram said he did not have a roadmap in mind for bank mergers. Asked whether the government would nudge banks to merge, he said, “It is for banks and their boards to propose consolidation.”

Chidambaram had advocated bank consolidation in his last stint too as finance minister. Former finance minister Pranab Mukherjee, now President, had also proposed consolidation. In December 2009, the finance ministry invited chiefs of five leading public sector banks—Punjab National Bank, Canara Bank, Union Bank of India, Bank of Baroda and Bank of India—to take their views on consolidation.

Banks, however, did not come up with any concrete proposal. Many small banks and trade unions strongly opposed the idea. Mukherjee later said the government would not force banks into mergers, but ‘bless’ any proposals in that direction.

Chidambaram said even while some consolidation takes place among top banks, there will be a need for local area banks. “I regret the idea of a local area bank which started in 1996 stopped after the first three licences were given,” he said.

The finance minister also said banks should innovate instead of becoming a clone of each other and assured the government would not try to impose uniformity.

“There is an unintended tendency to stress on uniformity. I’m opposed to that… I assure you that the Department of Financial Services (DFS) will not attempt to impose any uniformity and as long as I’m finance minister,” he added.

In the recent past the DFS had sent advisories to banks across the board on various issues about their functioning which had evoked sharp reactions from some banks.