"We have no issue with a merger. We are ready for it," said managing director of State Bank of Patiala S.A. Ramesh Rangan. "One of these five associates will be merged with the SBI this financial year," Rangan told IANS in an interview.
The government-run State Bank of India has five associates -- State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.
Out of these five, three of them are listed -- State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore. According to finance ministry officials in, State Bank of Patiala is the first in the queue.
But Rangan clarified that neither the government nor the SBI has yet approached his bank for the possible merger.
"We have not been asked yet. I don't know which one will be the first. But one thing is clear, one will be merged this year and hopefully other one next year and gradually all the five associates have to merge," said Rangan.
In the national budget presented July 10, Finance Minister Arun Jaitley had hinted at mergers of public sector banks. "There have been some suggestions for consolidation of public sector banks. Government, in principle, agrees to consider these suggestions."
Rangan, nevertheless, said mergers won't be easy.
"The five associate banks of SBI together have around 75,000 staff. Each one of them has a different work culture. So the merger is not an easy job," he said. "To ensure smooth merger, the government may opt for one bank at a time."
He also said banks must be recapitalised and strengthened before a take-over.
Asked which associates of SBI should be given priority, Rangan said: "I personally feel the bank with the stronger balance sheet should be given priority. Those that are weaker should be strengthened."
Two of the SBI's subsidiaries had already been merged in the past. The State Bank of Saurashtra in 2008, and the State Bank of Indore in 2010.
Rangan said mergers of associates will help SBI gain a reputable position in the global banking system and remain relevant in the emerging economic scenario. None of the Indian banks is among the top global lenders.
The Size of SBI is less than one one-sixth of the Bank of America.
Rangan, who had also worked in the finance ministry in a senior position, said consolidation would help Indian lenders raise required funds for expansion.
According to the finance ministry, public sector banks need equity capital infusion of Rs.2,40,000 crore by 2018 to be in line with Basel-III norms. Rising stress on public sector lenders due to loan defaulters is a major concern among all banks.
"All commercial banks's financials are under stress. Non-performing assets have risen sharply in the past five years. I am hopeful that the things would improve gradually in the coming years with the revival in the economy," he said.
The senior banker said big corporate houses, notably those in infrastructure business, were the biggest defaulters. Indian banks' exposure to infrastructure stands at around 40 percent of the total lending.
"Majority of infrastructure projects have been delayed due environmental clearances and some other issue. We hope, the things will move faster under the new government."
(Gyanendra Kumar Keshri can be reached at firstname.lastname@example.org)