Consolidation of banks is in the air yet again, with the boards of the five associate banks of State Bank of India (SBI) set to meet in Mumbai on Tuesday.

Although no specific proposal relating to merger or consolidation is listed on the agenda, the buzz is that the respective boards will discuss this issue along with other hot topics such as the non-performing loans situation and the Reserve Bank of India-mandated asset quality review.

The five associate banks are State Bank of Hyderabad, State Bank of Travancore, State Bank of Mysore, State Bank of Bikaner and Jaipur and State Bank of Patiala.

Rather than looking to merge them with SBI, the five associate banks may discuss their unification into a single entity to consolidate their business potential and ensure independent growth and progress, it is learnt. Should that happen, the combined entity will have total deposits of ₹5,00,845 crore and total loans of ₹3,97,796 crore.

Board agenda

The board agenda for Tuesday’s meeting includes “any other issues with the permission of the Chair”, giving some credence to expectations of a discussion around consolidation.

Finance Minister Arun Jaitley is in favour of the five SBI associate banks banded into one bank so that together they become stronger and viable, sources said.

On their part, the 70,000 employees and officers working in these five banks have also demanded unification.

“When we (All India Bank Employees’ Association) had, as a delegation, called on Finance Minister Jaitley on March 23 and April 26, he (Jaitley) had opined and suggested that these five associate banks could well be made into one single bank. We had also expressed our inclination for the same,” CH Venkatachalam, General Secretary, AIBEA, told BusinessLine .

AIBEA has written another letter (on May 14) to the Finance Minister seeking a “positive and early” decision in this regard. In his Budget speech this year, Jaitley had said that a roadmap for consolidation of public sector banks (PSBs) would be spelt out. At the March 2016 Gyan Sangam Summit, he had indicated that the government was actively looking to form a bank consolidation committee.

Small globally Banking industry observers and experts maintained that there is a case for merging some of the public sector banks, which are very small when compared to their global peers.

SBI, India’s largest commercial bank, is still not among the top 50 banks in the world. It is ranked only 67{+t}{+h} among the global banks. For an economy such as India’s — the fastest growing large economy in the world — the domestic banking industry is fragmented.

The thinking in certain quarters is that India needs stronger banks, not lots of banks.

During the United Progressive Alliance (UPA) regime, two associate banks — State Bank of Indore (2010) and State Bank of Saurashtra (2008) — were merged with the SBI.

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