India launches bid to build global-sized banks

Is pushing consolidation of public sector banks to create two megabanks.

The effort to consolidate public sector banks discussed over the past decade is finally being attempted for the first time as Finance Minister P Chidambaram takes the initiative to create India’s first two megabanks.

Being considered are the mergers of IDBI bank; Uco Bank and the Bank of Baroda into a single megabank, while Andhra Bank; Oriental Bank of Commerce and Bank of India will join to form the other megabank. There is, however, no official confirmation of these moves.

Some Indian bankers, however, said there is talk of consolidating the State Bank of India, Bank of India and Bank of Baroda to create the world’s largest bank.

Chidambaram recently told Parliament that not one Indian bank is among the top 20 in the world. He noted ruefully that China has three. State Bank of India is ranked 60th among the world’s top 1,000 banks, the highest ranking for an Indian bank.

Indian banks are so small, he said, that none of them are able to service a loan of US$1 billion.

Chidambaram emphasized there was a case for merging banks and for having two or three global sized Indian banks.

It may take SBI decades to reach the size of any top US banks if it has to grow only organically.