CB to urge small banks to merge with larger ones

The Central Bank (CB) in a medium term plan will be encouraging small commercial banks to merge with their larger counterparts, in a bid to have a robust banking system, CB sources said.

"We want to have a few strong banks within the next two to three years," a senior CB official said.

He added that there are some five strong banks in the country and the smaller commercial banks will be encouraged to merge with them. "By 2016 we want to have a Rs. 10 trillion banking system." Presently the asset size in the industry is Rs 5.8 trillion.

There are 28 commercial banks and nine specialised banks at present. The CB source said that the regulator will be approaching the boards of smaller banks within the next two years with suggestions for merging.

Meanwhile, considering the recent trends in the economy, it was proposed to increase CB's capital to Rs. 50 billion at this year's budget. At present there are 58 Finance Companies, out of which only 20 have an asset base over Rs. 20 billion, according to CB.

" Since some of them are owned by banks it was proposed that any finance company which is a subsidiary company owned by a main company, be absorbed by the latter to consolidate their operations," he said.

Banks, which have finance companies, will be required to consolidate their operations by acquiring the finance companies within the group to further strengthen the banks, he said, adding that as a part of financial sector strengthening, it was proposed to encourage development banks to merge as well.