India needs few mega banks to compete globally: CEA

"Having a few large Indian banks is a good idea. By encouraging some of our healthy banks to become big and thereby tap into savings elsewhere, it will be a positive thing. We should have a few banks who can compete. By this the quality of those banks gets enhanced as they compete globally with the best in the world", the CEA said.

New Delhi: Batting for PSU banks' consolidation, chief economic advisor Krishnamurthy V Subramanian has said having a few good banks is a good idea as they can compete and their quality can get enhanced to compete globally with the best in the world.

"Having a few large Indian banks is a good idea. By encouraging some of our healthy banks to become big and thereby tap into savings elsewhere, it will be a positive thing. We should have a few banks who can compete. By this the quality of those banks gets enhanced as they compete globally with the best in the world", the CEA told IANS in an interview.

He said a global bank benefits savings across the world. Chinese and European banks are very large, there are benefits they derive from economies of scale, which reduces their costs. American and Chinese banks benefit from global savings.

The Finance Ministry has been saying that India needs fewer and mega banks. The ministry had earlier called for further consolidation of India's banking industry, saying the country needs fewer, stronger mega lenders to exploit economies of scale.

The reasoning of the NDA government behind such cosnolidation has been to drive synergies, reducing duplication and generate savings.

Taking that line of action forward, state-run Bank of Baroda (BoB) became India's third largest bank after its merger with Dena Bank and Vijaya Bank came into effect from April 1, 2019, beating the private sector lender ICICI Bank. With a total business of about Rs 15 trillion, the merged entity is the third-largest lender in India, after State Bank of India (SBI) and HDFC Bank.

Bank of Baroda now ranks second in India across all banks. The merged entity has nearly 9,500 branches as Dena Bank and Vijaya Bank will help BoB increase its reach in the western, southern and north-eastern regions.

The new merged Bank of Baroda has an advances and deposits market share of 6.9 per cent and 7.4 per cent, respectively, according to a Motilal Oswal report. The retail book of the merged entity will increase to about 20% of total loans due to a higher retail book of Vijaya Bank. The combined entity will have a CASA mix of 33.6%, with a CD ratio of 70.7%, according to the report.

Before that in 2017, five associates and the Bharatiya Mahila Bank became part of the SBI catapulting the country's largest lender to among the top 50 banks in the world.

State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT), besides Bharatiya Mahila Bank (BMB), merged with SBI from April 1, 2017.

With this merger, the bank had joined the league of top 50 banks globally in terms of assets. The total customer base of the bank will reach 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs across the country.

The merged entity had a deposit base of more than Rs 26 lakh crore and advances level of Rs 18.50 lakh crore.

According to the annual report, the six entities added Rs 5.41 lakh crore to the deposits and Rs 2.98 lakh crore to the total loans.