India needs ‘big and world class’ banks, work on PSB consolidation has begun: FM Sitharaman

FM Nirmala Sitharaman

Finance Minister Nirmala Sitharaman said the government is discussing with the banking regulator as well as sector representatives to develop large, world class Indian banks, and work is underway for the consolidation of the state-owned banks.

The Centre has to sit and talk with the lenders and see how they wants to take this forward, said FM Sitharaman. "We are also discussing with the RBI on how they have a idea of building large banks," she added.

"There's a lot of work to do prior to my saying yes, I've taken a call, and in that work has already commenced," Sitharaman said while addressing at the 12th SBI Banking and Economics Conclave in Mumbai on November 6.

The Finance Minister’s comments came during the time when the buzz around consolidation of the state-owned banks has been doing the rounds.

On October 15, Moneycontrol have reported that India's banking sector is headed for another round of public sector bank consolidation with the government working on a mega merger that could see smaller lenders being merged with larger banks.

The idea would be to streamline the PSU banking landscape and have fewer, stronger entities that can support the next phase of credit expansion and financial sector reforms.

Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI) and Bank of Maharashtra (BOM) could be merged with big banks such as Punjab National Bank (PNB), Bank of Baroda (BoB) and State Bank of India (SBI).

State-owned lenders have not yet received any formal communication from the government regarding the next round of public sector bank (PSB) consolidation, Moneycontrol reported on October 24. Instead, most PSBs are likely prioritising efforts to bring down the government's shareholding to comply with the minimum public shareholding (MPS) norms.