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To attain world-class status — Govt favours consolidation in banks: Chidambaram

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Mr P. Chidambaram, Finance Minister, with chiefs of banks at the 57th AGM of the Indian Banks' Association held in Mumbai on Saturday. (From left) Mr A.K. Purwar, Chairman, SBI; Mr M.S. Kapur, Chairman & Managing Director, Vijaya Bank; Mr S.C. Gupta, Chairman & Managing Director, Indian Overseas Bank; and Mr V. Leeladhar, Chairman, IBA. - Paul Noronha

Mumbai , Aug. 28

THE Union Government is in favour of consolidation in the Indian banking industry and is of the view that it will enable banks to achieve `world-class' status, according to the Finance Minister, Mr P. Chidambaram.

"Consolidation alone will give banks the muscle, size and scale to act like world-class banks. We have to think global and act local and seek new markets, new classes of borrowers. It is heartening to note that the Indian Banks' Association is working out a strategy for consolidation among banks," he told members of the IBA at its annual general meeting here on Saturday.

The IBA, under the Chairmanship of Mr V. Leeladhar, recently constituted a committee to examine the various facets that could lead to consolidation between two public sector banks.

The committee will also study the legalities and look into the various acts to see if there are any amendments necessary to facilitate a merger. The committee is expected to submit its report in a month's time, according to sources.

The Narasimhan Committee on financial sector reform (Narasimham Committee-II) had originally recommended reducing the number of public sector banks, to create a few large banks, which would be large-scale in operations and international presence.

Till now, most mergers that have taken place in the banking industry have been under coercion, e.g., Nedungadi Bank with Punjab National Bank, Global Trust Bank with Oriental Bank of Commerce, Benaras State Bank with Bank of Baroda and Sikkim Bank with Union Bank of India, sources said.

Industry sources are of the view that consolidation in the banking industry is long overdue and will help banks scale-up their operations in terms of lending and risk taking.

A number of banks are understood to be already in the process of scouting for acquisitions or merger possibilities with one or more banks. A few bankers admitted that they are on the lookout but are awaiting IBA's report, which may outline the parameters for consolidation.

In fact, Chennai-based Indian Bank may hit the market with an initial public offering later during this fiscal in order to fund its `growth plans'.

Acquisitions: Speaking to presspersons on the sidelines of the meeting, Mr M.B.N. Rao, Chairman & MD, Indian Bank, said, "If you want to grow, you need capital."

Mr Rao admitted that the bank was scouting for acquisitions but declined to specify any details. "We will takeover some bank and are looking at two or three targets at the moment," he said.

Responding to queries on whether he has been sounded out to takeover any of the `weak' banks, he said, "We are not looking to take over somebody's distress."

Bank of Baroda is also looking for acquisitions `in principle', according to Mr P.S. Shenoy, Chairman and Managing Director, BoB.

"We are looking for acquisitions in areas where we don't have a very strong presence. We are very strong in western India but don't have much reach in the South, East and North. These are the areas to which we would like to expand," he said.

Mr Shenoy said the bank is not only looking at other public sector banks for this purpose, but is also open to looking at private sector banks.

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