'Consolidation in Indian banking sector still far'

Punjab National Bank (PNB) Chairman and Managing Director K R Kamath has said consolidation in the Indian banking sector will still take some time to happen.

He said while there had been a few mergers in the Indian banking space, it had happened due to ‘exigencies’ and were rather ‘forced consolidation’.

“However, consolidation between two healthy banks still have time gap to happen in India,” Kamath told Business Standard on the sidelines of a conference call.

While, the past mergers were facilitated by the Reserve Bank of India (RBI), there have been voices from the Union finance ministry for consolidation in banking space for better management and economies of scale.

Earlier, commenting on the recent rise in key policy rates by the central bank, Kamath said although there was liquidity in the system, there was pressure on liquidity.

“RBI has taken some steps to ease liquidity pressure, including easing Statutory Liquidity Reserve by one percent. RBI has the dual task of containing inflation and ensuring that the growth does not suffer,” Kamath said.

Indian banks had recently borrowed over Rs 100,000 crore from RBI. He said if the inflation was not contained, the deposit and lending rates could go up in near future.

“The banks have a difficult task of ascertaining if there would be enough credit absorption in the market to keep pace with the hike in deposit rates,” he added.

On the probable entry of more private banks in the system, Kamath observed that more players would add to the competition, which would only help bring out the best in customer service. “Public sector banks are prepared for the competition,” he said.