Indian mid-size banks should look at mergers and acquisitions to adjust to the changing economic scenario, Finance Secretary Ashok Chawla said on Tuesday, marking the first time the government has officially endorsed such a move.
“In the next five to 10 years, mid-size banks should look at merger and consolidation so that the structure of the banking system is changed to suit the growing needs of the economy,” Chawla said at an event organised by Vijaya Bank to launch its mobile banking service.
Chawla said the country needed banks with bigger balance sheets. “I am not here to discourage bigger banks from going abroad. To a great extent size is important in today’s world,” he added.
The country’s largest bank State Bank of India (SBI) had merged its subsidiary State Bank of Saurashtra in August 2008. A proposal is also pending with the government to merge State Bank of Indore with SBI, which initially had seven associate banks. “The strength of SBI is welcome but other banks should also grow,” said Chawla.
The finance secretary said though it was possible to argue that niche banks provided better services, optimum size was required to reduce cost of funds. “Mid-size banks should find ways and means to work together and seriously need to take a look at consolidation,” he said.
Recently, SBI chairman O P Bhatt had emphasised the need for bigger banks in the country especially since they could fund the needs of a globalising Indian industry.
