RBI says time not ripe for PSB consolidation

Barely a week after the finance ministry officials met leading state-owned banks to push mergers through buyouts of smaller banks, the Reserve Bank of India (RBI) today said the banking system is not yet ready for consolidation.

"The time for consolidation has not come. We have a problem. There are a few dominant players... If we are consolidating, there will be a problem," RBI Deputy Governor KC Chakrabarty, told reporters on the sidelines of a conference here.

Given the low banking penetration, and large unbanked areas, the country's banks should focus more on achieving financial inclusion rather than consolidating existing players, Chakrabarty said.

"Financial inclusion is more important than consolidation at this stage," the deputy governor said.

Last week, the heads of five leading PSBs--Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India and Oriental Bank of India--met the finance ministry officials to discuss the issue.

Following this, bigger public sector banks (PSBs) like Bank of Baroda, Canara Bank, Union Bank and IDBI Bank have said that they have initiated a hunt for smaller banks for possible mergers.

IDBI Bank chairman and managing director Yogesh Agarwal today said his bank has identified two banks as possible targets and the talks have already started. The bank has adequate capital to fund the buyouts, Agarwal added.