Merger of banks has to be very focused: Mundra

Reserve Bank of India (RBI) Deputy Governor S S Mundra on Monday supported consolidation in the banking sector but said it had to be a focused exercise.

“I believe that merger (of banks) for the sake of merger only would not serve the intended purpose. Yes, there can be a room for merger to bring in new entities but it has to be a very focused thing and should be done strategically,” Mundra said at an event here.

He said a merger should be done if it results into geographical integration, giving banks a wide geographical spread and enhance their product range, among others.

“Just to merge because some bank is a weak bank and another is a strong bank... then may be in the process rather than supporting the weak bank, you may end up making the strong bank a weak bank,” he said.

He, however, added this might not necessarily happen, but the probability could not be ruled out.

There are 27 public sector banks, including State Bank of India (SBI)’s five associate banks, in the country. Talks have been going on for long for merging SBI’s subsidiaries with the parent bank.

SBI first merged State Bank of Saurashtra with itself in 2008. Two years later in 2010, State Bank of Indore was merged with SBI.

The country’s largest lender has five associate banks — State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.

‘Excessive focus on retail lending’
Mundra warned banks against their excessive focus on retail lending, saying that the segment cannot be the panacea for growth and that too much of retail lending would also create its own problems.

“Whatever has happened in the corporate financial world in the past couple of years, probably now everyone is moving towards retail lending. But retail banking cannot be a panacea for credit growth,” Mundra said.