The Hindu Business Line : Merger of strong PSU banks `very soon'

In what could spark off a complete overhaul of the banking structure in the country, the Government appears to be working on catalysing the first merger between two strong public sector banks. Senior Finance Ministry officials said that an announcement of the first such merger could come "very soon."

However, in keeping with the official stand, the officials said that the decision on mergers would be left entirely to the board of the respective banks while the Government would only play a supportive role in the matchmaking exercise.

Hinting that the plans might be in an advanced stage, officials said that prior to a formal announcement the Government would like to hear the Parliament's view on the two recent merger proposals both involving a public sector entity with a private sector bank — IDBI Bank with IDBI and Global Trust Bank with Oriental Bank of Commerce.

"Parliament may have some valuable suggestions to make on the recent mergers. We have to wait for the three-week session to get over to obtain the feedback from the legislators before taking further steps," officials said.

The merger moves are being driven by the Narasimham Committee on financial sector reform (Narasimham Committee-II) that in its report in 1998 had recommended a substantial pruning of the number of PSU banks from the set of 27. The 27 banks include State Bank of India and it seven associate banks.

Endorsing the 1991 suggestions of the Committee on Financial System (also headed by Mr M. Narasimham) that had originally sparked off financial sector reforms in the country, Narasimham Committee-II had suggested that the PSU lot should be reorganised into a dozen-odd banks through mergers. It has suggested the creation of two to three large banks alongside SBI that would have international presence, while another eight to 10 other `national' banks should be created each of which would have extensive domestic reach.

"Size has come to be regarded as a major source of strength. The trend towards convergence is also being driven by the move, across the industry, towards relationship banking, that is to identify and meet all of the needs of a customer through a single (or affiliated) institution," the Committee had said.

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