Govt meets bankers, kicks off M&A discussion

The government kicked off the discussion process towards consolidation in the banking sector at a meeting with senior bankers on Wednesday.

"We have given our views. They are interested to know what are the issues likely to arise. We have shared with them what are the issues," AC Mahajan, Chairman and Managing Director, Canara Bank, said after attending the meeting.

While the positive factors include size and scale, technology, there can be challenges on integrating two banks culturally, bankers said after the meeting.

"It is the beginning of a series of such meetings," another banker said on condition of anonymity.

Senior government officials in the finance ministry met top bankers including the chiefs of Canara Bank, Bank of Baroda, Union Bank of India and Punjab National Bank.

No concrete decision had yet been taken in the meeting on the way forward to consolidation, the bankers said.

"One of the points that was if there is a synergy, if they can come together, then it can create a better option," said a banker.

Geographical synergy was also one of the points discussed for consolidation, they added.

The finance ministry has been urging banks since the last few years to start the process of mergers and acquisition on a voluntary basis, but none of the state-run banks have shown any initiative on this.

Last week Prime Minister's adviser Raghuram Rajan told Reuters on the sidelines of the World Economic Forum that if the banks decide there would be synergies in going for consolidation, they should be allowed to do so.

References were also drawn from the Narsimhan Committee report which had suggested consolidation among banks.

The government had set up the Narsimhan Committee to recommend reforms in banking sector.

"No one wants to lose his chair. If a bank is merged, then the small bank chairman will lose his position and power," said a top banker at a state-run bank.

However, issues like "too big to fail" may also crop up in later meetings following the recent global experience of failure of huge financial conglomerates.

The process has just started and there was a long way to go, the bankers said.