RBI asks IBA to form panel to study PSB mergers

The Reserve Bank of India (RBI) has set the ball rolling for consolidation among public sector banks (PSB) and has asked the Indian Banks Association (IBA) to form a 'committee on consolidation' which will look into the legal and regulatory issues if mega mergers were to be effected.

"IBA has formed a committee on consolidation of public sector banks. The idea is look into the legal and the regulatory issues that in the past have resulted in hurdles and have acted in the way of merger," explained H N Sinor, chief executive, IBA while speaking to Business Standard.

"The ambit of the study would strictly be confined to the legal and regulatory issues involved with merger of public sector banks. We will however not comment on identifying the banking entities which would be merger with another. This committee will find out and provide possible solutions to legal hurdles that was likely to be faced by banks when they are merged," he explained.

"IBA is not working on any proposal for mega merger that would identify which bank to be merged with which one," Sinor clarified.

"The Committee will, however also look into technical and human resource aspects and issues that could pose as problems when these kind of mergers are taken up by the ministry or the respective authorities," he added.

"IBA is involved in creating a document that, in the event of merger and consolidation can be followed to hasten up the process as there has been legal and regulatory issues in the past that have delayed such processes," Sinor said.

The central government was seriously thinking about effecting the consolidation among the public sector banks that would create three to four large banks with national presence as against the present scenario of a number of banks each strong in each territory.

Sources in the banking sector have said that the process was likely to be kick started by 2005 end of early 2006.

"With almost all development finance institutions being merged with banks, it was the turn of the public sector banks. The ideal situation would be where four banks would be formed by merging all public sector ones which would act as strong national players," the source said.

"We are working on the paper which is likely to be ready in the next few weeks, following which it would be submitted to RBI," Sinor added.