E&Y,McKinsey seek bank amalgamation

For instance,the amalgamation of Bank of India with Oriental Bank of Commerce can result in a stronger bank with a market share of around 7.2 per cent,so this can be a good amalgamation,the consultants seem to have suggested. Or,the combined market share of Punjab and Sind Bank and Punjab National Bank is around 8 per cent.

Finance ministry officials maintain a cautious view regarding the pace at which consolidation of banks can take place in the country. “Until political consensus is arrived at and banks initiate the process on their own,nothing can happen,” said an official.

Meanwhile,five big banks — Punjab National Bank,Canara Bank,Union Bank of India,Bank of Baroda and Bank of India — invited by the government for the first round of talks on consolidation,are working separately to formulate a scheme for consolidation. Each bank has been asked to study and suggest a suitable merger candidate and submit a detailed report by March end.

The process for amalgamation of public sector banks (PSBs) is directed by The Banking Companies (Acquisition and Transfer of Undertakings) Act,1970. According to the Act,the Central Government may,after consultation with the Reserve Bank,formulate a scheme to carry out the process of amalgamation of PSBs.

A final scheme or plan for consolidation will be chalked out by the finance ministry after studying the proposals shared by the (five) banks and consulting firms together. The plan is expected to be ready in the next six months and will then be discussed with the Reserve Bank of India for its approval. It is only after RBI gives its stamp of approval that the government can take the first concrete step. “We believe that consolidation is the way forward. India as an emerging economic powerhouse needs bigger and stronger banks that have international presence,” said Ashvin Parekh,national leader,global financial services,E&Y.

At present,the State Bank of India is the largest bank in India with an asset-size of more than Rs 700,000 crore. It commands almost 30 per cent of the market share. The second largest bank,PNB,is a distant second with a meagre 5.2 per cent market share.