The government is studying various models of PSU banks consolidation though a concrete decision will be taken only after the success of three-way merger of Bank of Baroda (BoB), Dena Bank and Vijaya Bank, official sources said on Thursday.
"There are various models that could be looked at. There could be a merger of 5-6 pan-India banks with regional reach, like the Bank of Baroda. The second option is to combine 12-15 banks. The other option is merger of regional banks on the basis of their strengths," sources said.
"The success of the merger happening right now (BoB-Dena Bank-Vijaya Bank) will be looked at closely before deciding on a future course," said a source.
The merger of Vijaya Bank and Dena Bank with Bank of Baroda is underway to create the third biggest public sector bank after the State Bank of India (SBI) and the Punjab National Bank (PNB). The merger will be effective from April 1.
The merged entity will also be the third in terms of assets after the SBI and the ICICI Bank.
The government is looking at the possibility of merging PSBs to create healthy large banks which could compete globally.
Finance Minister Arun Jaitley has on several occasions stressed the need to have stronger consolidated banks, which could have economies of scale and operational efficiencies.
After April 1, the number of state-run lenders will come down from 21 to 18 following the amalgamation of three banks.
State-run lenders have been hit hard by around Rs 8 lakh crore in bad loans. Many of them have weak balance sheets and are under the Reserve Bank of India's prompt corrective action (PCA) framework due to bad asset quality.