India needs mega banks to compete globally: CEA

New Delhi: Batting for PSU banks' consolidation, chief economic advisor Krishnamurthy V Subramanian has said having a few good banks is a good idea as they can compete, and their quality can get enhanced to compete globally with the best in the world.

"Having a few large Indian banks is a good idea. By encouraging some of our healthy banks to become big and thereby tap into savings elsewhere, it will be a positive thing.

We should have a few banks who can compete. By this the quality of those banks gets enhanced as they compete globally with the best in the world", the CEA said.

He said a global bank benefits savings across the world. Chinese and European banks are very large, there are benefits they derive from economies of scale, which reduces their costs.

American and Chinese banks benefit from global savings. The Finance Ministry has been saying that India needs fewer and mega banks.

The ministry had earlier called for further consolidation of India's banking industry, saying the country needs fewer, stronger mega lenders to exploit economies of scale.

The reasoning of the NDA government behind such consolidation has been to drive synergies, reducing duplication and generate savings.

Taking that line of action forward, state-run Bank of Baroda (BoB) became India's third largest bank after its merger with Dena Bank and Vijaya Bank came into effect from April 1, 2019, beating the private sector lender ICICI Bank.

With a total business of about Rs 15 trillion, the merged entity is the third-largest lender in India, after State Bank of India (SBI) and HDFC Bank.

Bank of Baroda now ranks second in India across all banks.