Consolidation inevitable for Indian banks

Aim is to create mammoth banks that can compete globally.

Finance Minister P Chidambaram said India needs one or two global-sized banks as it advances to become the world's third largest economy.

"Finding new business models will inevitably lead to some consolidation,” he said. “We must create at least 2 or 3 world size banks. China has done it.”

Consolidation, however, is opposed by unions that are fearful of job losses in the merged financial institutions. Chidambaram said unions should not fear consolidation.

“I know there is pride and identity, but ultimately some consolidation would have to take place in the banking system in this country," he said.

There are 19 nationalised banks and scores of private and foreign banks in India. There is also the State Bank of India and its five associate banks that are in the process of merging.

The Finance Ministry recently asked large public sector banks to assist their smaller counterparts to improve the latter's operations.