Consolidation among public sector banks (PSBs) is good for the banking industry as it will ensure that consortiums lending to projects are not too big and there is optimum utilisation of capital according to State Bank of India Chairman Dinesh Kumar Khara.
The general tendency among banks to operate in all the niche segments, Khara said small size banks may not have the ability to absorb losses that might come up. Moreover the ability to lend larger ticket sizes is also restricted for small sized banks.
In the last couple of years the government had consolidated 13 PSBs into five banks. Khara noted that consolidation also helps in pooling the skills as increasingly there is need for specialised skills to manage various critical roles in banks. When it comes to capital the SBI Chief said the optimum leverage of capital will be possible with the pooling of balance sheets.