India needs four-five SBI-size banks, says FM Nirmala Sitharaman

The country needs four-five banks of State Bank of India's size to cater to the changing and growing requirements in the post-pandemic world, said Union Finance Minister Nirmala Sitharaman on Sunday.

"Even before the pandemic, one of the driving forces for the amalgamation (in public sector banking space) was the need to scale-up banking. India needs a lot of banks but a lot more big banks," said Sitharaman, while addressing the Annual General Meeting (AGM) of Indian Banks' Association (IBA) here. She, however, did not elaborate if further consolidation of public-sector banks was on the cards.

"The amalgamation is an important exercise because of the way in which economies are shifting to different planes altogether. (And) Also, the way the economy and industry are looking at different ways adapting to growth in the post-pandemic era.  Banks need to think about the immediate and long-term future," she said.

The consolidation process in the public sector banking space began with SBI merging its five associate banks and Bharatiya Mahila Bank in April 2017. This was followed by the merger of Dena Bank and Vijaya Bank into Bank of Baroda in April 2019.

Then a large-scale consolidation exercise happened in April 2020: Punjab National Bank (PNB) took into its fold Oriental Bank of Commerce and United Bank of India. Also, Union Bank of India imbibed Corporation Bank and Andhra Bank; Indian Bank absorbed Allahabad Bank, and Canara Bank took Syndicate Bank into its fold.

The latest instance of consolidation in the banking space was in November 202o when Singapore-based DBS Bank's Indian subsidiary acquired the ailing private-sector lender Lakshmi Vilas Bank (LVB).

The finance minister also noted that some of the economically active regions of the country still lacked banking facilities, and that banks should use digital maps to plug gaps and ensure services when the economy is recovering.

She said IBA should take the lead in the exercise of plugging these gaps. Banks have the option to decide which place requires banking presence through a brick-and-mortar model and where a direct presence should help.

"Digitisation has saved a lot of costs for banks even without compromising on the services banks provide. There need not be competition among banks for presence. You could service customers even without physical presence," Sitharaman said.

About efforts towards cleaning up the books of banks, the finance minister said National Asset Reconstruction Company (NARCL) and Debt Resolution Company have been set up. They should be able to cull out non-performing assets, restructure, and sell them. "It is a formulation which has saved us from one imitating something which all are averse to in a sense, at least for its name 'bad bank'."

"This combination is not a bad bank as this process is driven by a banking system with the sense to clear up books quickly. Banks are today less burdened as books are cleaner and as a result, they are able to raise money from the market," she added.