The government hopes to be ready with the Bank of India-Union Bank of India merger before the Budget. It is targeting to place the details of the merger in Parliament by February 20. According to sources, the deal can only be completed 30 days after it is placed in Parliament.
While the two banks have not approached the finance ministry formally, informal discussions have already taken place. The ministry had earlier denied any move to merge BoI and Union Bank.
Another merger idea doing the rounds is that of Bank of Baroda (BoB) with either Dena Bank or Allahabad Bank.
If the BoB-Dena Bank deal goes through, Allahabad Bank may look out for another bank in the eastern region. Down south, there is talk of a merger between Indian Overseas Bank and Indian Bank.
Sources in the know of the developments said a merger of two banks with headquarters in the same region offered greater benefits as there would be lower resistance from employees and also from state governments.
"We would ideally want banks in the same state to look for a partner. At the same time, there is also a need to factor in the synergies like the strength of one bank in the retail segment if the other one is stronger on corporate lending," the sources said.
A similar approach had also been suggested by the Narasimhan Committee. According to sources, there is room for about five large banks in the country. Mergers would give them greater financial strength and reduce undercutting.
The government and the Reserve Bank of India have, however, decided to adopt a hands-off approach in the consolidation process and has left it to banks to decide on partners based on synergy.