Mergers, consolidation on cards for banking sector: Experts

Q: Do you think it will become a reality though or is it just a discussion paper which is been opened up?

Khandelwal: I think once government has invited, certainly they are again thinking about it. So I do not think that it is simply an academic exercise. Government had raised it in 2004 onwards. But there are two issues. One, is government thinking under the framework of Narasimham Committee - what they suggested creating some global sized banks and then national banks or it is really an arithmetic that small banks, which could at some point of time require more capital or there maybe some other kinds of problems. Are they thinking just a small bank going into bigger ocean or it's a larger framework under Narasimham Committee that needs to be clear.

Q: What's your sense because one of the consolidation combinations which have been spoken about is Canara Bank taking on Dena Bank? Do you think that's a possibility and does it make sense to go in for a merger like that?

Rao: In all fairness I would not take specific names no doubt I have been the chairman of Canara Bank. Canara Bank being one of the stronger banks definitely there is a possibility for Canara Bank to think of consolidation with one of the larger banks where it meets them in terms of synergy, in terms of the complementarities. So we did explore and definitely if government is supportive I am sure those efforts should fructify.            

Q: Taking a step back though from what you see and hear at this point - how likely is it that this time around there will indeed be consolidation of some of these smaller sized banks?

Sinor: I believe the time is now most opportune to go in for a consolidation. We have been talking about it for the last five-six years. I remember in 2004 when the then finance minister said that if the two banks are coming together government as the majority shareholder will bless it. At that time politically situation was not right to take it forward but now environment is absolutely ripe to go in for the consolidation.

Q: What primarily is being considered here though because for the two faces talked about - Dena Bank and Canara Bank - it seemed optically that the only synergy was that they were in different parts of India? Do you think capital adequacy ratios or size etc will also be taken on board or will it be more of a geographic fit?

Sinor: There are varieties of reasons for the consolidation. (1) Do we need 20 nationalise banks? (2) Owner is the same. (3) It would be efficient use of capital, efficient use of infrastructure. The overlap of branch can bring about lot of cost synergies that would also release large number of licenses so greater penetration would be available now to the banks. Apart from that the size also will allow banks with larger size to go in for infrastructure funding in a big way. So there will be lot many positives that will come through the consolidation process.

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