Consolidation between public sector banks (PSBs) is good for the banking sector as it will ensure that consortia lending to projects are not too large and that the use of capital is optimal, according to the president of the State Bank of India , Dinesh Kumar Khara.
Talk to Activity area on the general tendency of banks to operate in all niche segments, Khara said smaller banks may not have the capacity to absorb losses that may arise. In addition, the possibility of lending larger banknotes is also limited for smaller banks.
“Bigger banks will certainly help us ensure that the consortia are not too big. With a manageable consortium size, decision making becomes easier. So I think to that extent I would say this consolidation is a welcome step that has been taken, ”said the director of India’s largest bank. In the past two years, the government had consolidated 13 PSBs into five banks. Khara noted that consolidation also helps pool skills, as more and more specialist skills are needed to manage various critical roles in banks. “So, for example, risk and compliance is one of the important skills. Technology is another very important area. Unless and until the size matters, that may not justify the kind of spending needed to really tackle these areas of concern for the banks, ”he said.
Regarding capital, the head of the SBI said that the optimal leverage of capital will be possible with the pooling of balance sheets. “If necessary, there is some leeway available in some of the smaller banks, which are merging, which can be better utilized. Second, in terms of provisioning, what happens is that in the consortium, practically the same asset is funded by many banks. So if necessary, there is some leeway for provisioning, to that extent, optimization of provisioning is possible with pooling of resources, ”Khara explained.
Regarding the size of the balance sheet, the head of the SBI stressed that his bank, which had a total activity (global deposits plus global advances) of 63.40 lakh crore at the end of September, is still quite large compared to its next biggest competitor. SBI’s closest rival is HDFC Bank (total business: 26.05 lakh crore), followed by Punjab National Bank (18.51 lakh crore).