The finance ministry on Tuesday reiterated the need for government-run banks to look for mergers and acquisitions in the next 5-10 years to achieve optimum economies of scale. According to finance secretary Ashok Chawla, merger is important so that banks can achieve balance sheet and asset size, which corresponds to the need of the country.
To support the growth of the economy at 9-10%, size of banks is very important, said Mr Chawla, adding that, it would not only help in meeting domestic transactions, but a multitude of international transactions. "Subject to synergy, subject to reasonable similarity in culture, they in the next 5-10 years really need to look at consolidation and merger," said Mr Chawla in Delhi, after launching the mobile banking service of Vijaya Bank.
The country's largest public sector bank State Bank of India currently ranks 64th among global banks, while China has four banks, among the worlds top 20 banks.
"We do need banks with optimum size to reap the advantage of economies of scale. Size is important in todays world to achieve optimum economies of scale and therefore as a general prescription it would be good for medium-size banks to look at where there are synergies, where there are cultural fits and carry forward the process of mergers and acquisition which is essentially something which the banks and management have to take a call on," Mr Chawla pointed out.
SBI chairman OP Bhatt had earlier pointed out in an ET conference that with India Inc pushing on with the globalisation drive, it is time banks evolved in sync with the changing times.
Mr Bhatt had then conceded that Indian banks are not in a position to cater to the demands of the corporate. "Foundation of Indian banking industry is solid. But looking forward, there are things we have to do if it has to remain in sync with the times," said Mr Bhatt.