Consolidation among public sector banks may have been put on the backburner, but the finance ministry feels that nationalised banks should explore the possibility of taking over private banks.
It has asked the Reserve Bank of India to come out with a list of weak private banks. But the RBI was wary that a move like this would trigger a run, sources said.
As part of the banking sector road map for foreign banks announced in February this year, the RBI had said it would allow them to acquire majority stakes only in weak private banks till 2009.
Finance ministry officials said consolidation was the way forward for nationalised banks. But, given the opposition from the Left, the proposal to allow public sector banks to take over other state-owned entities, had been put on the backburner.
"However, there is no restriction on allowing nationalised banks to take over private banks," said an official.
There were no proposals for PSU banks taking over a private bank at present, officials added. At least two banks -- Bank of India and Union Bank of India -- were pursuing a merger proposal last year.
It did not materialise as the Left was opposed to the consolidation on the grounds that it would result in a loss of jobs.
The finance ministry is, however, of the opinion that large banking companies will be able to take on global competition better. They will also be better equipped to deal with the impact of higher capital adequacy requirements that will come into place next year, officials said.
The issue was also discussed at the last meeting of nationalised bank heads with Finance Minister P Chidambaram two months ago.
Buying spree
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In February, the RBI had said it would allow acquisition of majority stakes in weak private banks till 2009
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The finance ministry believes large banks will be able to take on global competition better
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Though North Block wanted consolidation of nationalised banks, the issue had been put on the backburner because of opposition from the Left
- The Reserve Bank of India fears a move like this may trigger a run on weaker private banks
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