The government has effected a subtle shift in its policy stance for bank mergers. Consolidation in the sector would now be achieved by merging strong banks instead of ‘‘bailing out’’ a small or a weak bank by a big public sector bank.A senior government official said, ‘‘Mergers between two big PSU banks will help in creating strong entities which could be globally competitive.’’The motive behind bailing out weaker banks was to protect the interests of depositors, he said. But, he said, ‘‘To have a global presence, this formula will not work and we are in favour of now merging one big bank with another big bank’’.The government will, nevertheless, prevent the financial system from systemic failures, if induced by failing banks.Big PSU banks, which could further consolidate, include Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and Union Bank of India. The State Bank of India is yet to take a decision on whether or not to merge its seven associate banks. ‘‘The proposal is still there. The SBI board has to take a decision on this,’’ official sources said.That apart, to improve the functioning of regional rural banks (RRBs), the finance ministry has urged sponsor banks of one particular region to take over RRBs of that region. Earlier, the government wanted to merge all RRBs to create a single strong entity.Bankers said the Indian Banks’ Association (IBA) committee set up to conduct a feasibility study on consolidation in the sector will suggest candidates for merger based on different criteria. The report is likely to be ready in a couple of weeks.‘‘Consolidation in the banking sector is the need of the hour, keeping in mind that Basel II norms will have to be adopted by banks by 2006,’’ the official said. Bank stocks fall after CRR hike
