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Govt not to force bank mergers
January, 25th 2010

Mergers on individual banks will not be forced and no time frame has been set for the consolidation process in the banking system, Financial Services Secretary R. Gopalan said on Tuesday.

Merger of State-run banks should be done with a view to bring in good synergies, on mutual interests of the concerned entities and Government will not compel the consolidation process on individual banks, Financial Services Secretary, R. Gopalan said at Bancon conference here.

We will not force consolidation upon the banks but will support the merger moves if banks come with proposals...Amalgamation should be on mutual interest (of both parties), Mr. Gopalan said.

Banks will have to take into account various aspects economics of scale, optimisation of human resource issues and higher operating efficiencies while executing the merger moves, Mr. Gopalan said.

Noting that banks have the freedom to decide on their acquisitions plans, Mr. Gopalan said that the Government was willing to look into the merger proposals emerging from individual players and support the consolidation process.

Although Reserve Bank is of the view that consolidation in the sector was necessary for Indian Banks to grow their size and thus face the competition emerging from the global banks coming with deep-pockets, mergers among State-run banks is largely confined within the State Bank group.

Stressing the need for bigger banks in the country to compete in the global space, SBI Chairman, O.P. Bhatt had on Monday said that the process of consolidation was going a bit slow in the group.

Banks had also expressed their concern on the rising Non-Performing Assets (NPA) in the system, primarily from those loans given to small companies, which, they fear, will default payments after hit by the slowdown in global financial markets.

Quoting a report, Mr. Gopalan said gross NPAs of Indian Banks are likely to escalate to 3.5-4 per cent by March, 2011.

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