PSU Banks Merger: 'SBI Supportive Of Idea' Says Chairman, Stocks Outperform Benchmark
Setty said consolidation is also practical because state-owned banks need scale to compete with private-sector rivals.
The Nifty PSU Bank index has been buzzing in trade on Monday, trading with gains of more than 1.1% amid news reports of renewed talk of government-led public sector bank mergers, which may be announced in April-May.
The reports have boosted sentiment across the PSU Bank space, with the likes of State Bank of India, UCO Bank and other state lenders trading with gains in Monday's session.
Against this backdrop, State Bank of India Chairman CS Setty has backed the potential onset of another consolidation cycle.
In an interview with Bloomberg, Setty said India's banking landscape still has lenders operating below optimal scale and therefore, consolidation could make sense.
“Some further rationalisation might make sense. There are still some smaller, sub-scale banks,” he said. “If another round happens, it may not be a bad idea.”
Setty's public endorsement of consolidation is in tune with the government's broader goal of building a larger and a stronger financial ecosystem capable of supporting India's long-term aspirations.
India aims to transform into a developed economy by 2047, which will require banks to sharply expand their financing capacity.
“Bank financing needs to increase to 130% of GDP from 56% currently,” Setty said, noting this is essential for funding infrastructure and industrial expansion as GDP climbs toward a projected $30 trillion.
SBI commands about a quarter of India’s Rs 194-lakh-crore loan market, giving it a major vantage point in the banking space.
Setty said consolidation is practical because state-owned banks need to scale up in order to compete with private-sector rivals. To put things into perspective, only SBI and HDFC Bank currently rank among the world’s top 100 banks by assets.
Amid tighter pricing in corporate lending and rising demand for project finance, Setty said the banking system must evolve.
“There are many banks looking to build corporate portfolios, but only a limited number of large corporates, so that segment will remain highly competitive,” he said.
With policymakers weighing a fresh consolidation blueprint, SBI’s backing signals broad institutional support for the next wave of PSU bank mergers, although the exact extent of the consolidation remains to be seen.
