Money & Banking

SBI Chairman says consolidation of PSU banks is good for the banking industry

K Ram Kumar/ Surabhi Surabhi | | | Updated on: Dec 05, 2021
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Leads to optimum utilisation of capital, large-size lending and risk-taking, says Dinesh Kumar Khara

Consolidation among public sector banks (PSBs) is good for the banking industry as it will ensure that consortiums lending to projects are not too big and there is optimum utilisation of capital, according to State Bank of India Chairman Dinesh Kumar Khara.

Talking to BusinessLine on the general tendency among banks to operate in all the niche segments, Khara said small size banks may not have the ability to absorb losses that might come up. Moreover, the ability to lend larger ticket sizes is also restricted for small-sized banks.

“Bigger banks will certainly help us in ensuring that consortiums are not too big. With a manageable consortium size, decision-making becomes easier. So, I think, to that extent I would say that this consolidation is a welcome step which has been taken,” said the Chief of India’s largest bank. In the last couple of years, the government had consolidated 13 PSBs into five banks. Khara noted that consolidation also helps in pooling the skills as increasingly there is need for specialised skills to manage various critical roles in banks. “So, for instance, Risk and Compliance happens to be one of the important skills. Technology is another very important area. Unless and until the size is big, perhaps it does not justify the kind of spending required for really addressing these areas of concern for banks,” he said.

 

Optimisation of capital

When it comes to capital, the SBI Chief said the optimum leverage of capital will be possible with the pooling of balance-sheets. “If at all, there is some elbow room available in some of the smaller banks, which are getting merged, that can be put to better use. Secondly, when it comes to provisioning, what happens is that in the consortium, practically, the same asset is funded by many banks. So, if at all, there is some elbow room for provisioning, to that extent the optimisation of the provisioning is possible with the pooling of resources,” explained Khara.

Competition

As for the balance-sheet size, the SBI Chief emphasised that his bank, which had total business (global deposits plus global advances) of ₹63.40-lakh crore as at September-end is still fairly big compared to its next biggest competitor. SBI’s nearest rival is HDFC Bank (total business: ₹26.05-lakh crore), followed by Punjab National Bank (₹18.51-lakh crore).

 

Published on December 06, 2021

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