The guiding principle for the consolidation process of banking in India was suggested by Narasimham Committee. According to which any initiative with respect to merger of public sector banks has to come from the Boards of the banks concerned, the extant legal framework, keeping in view the synergies and benefits of merger and their commercial judgment. Government’s / Reserve Bank of India’s role in the merger of banks would be that of a facilitator.

The Cabinet in its meeting on dated 15th June 2016 has approved the proposal of acquisition of assets and liabilities of subsidiary banks i.e. State Banks of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore and Bhartiya Mahila Bank (BMB).

The benefits for attempting the merger of 5 subsidiary banks and BMB with SBI include rationalization of resources, reduction of costs, better profitability, lower cost of funds leading to better rate of interests for public at large, improved productivity and customer services. Merger will also ensure that due to size and scale of economy, SBI will be able to better handle ensuing competition from new Banks.

This information was given by Minister of State for Finance Shri. Santosh Kumar Gangwar  in reply to a Rajya Sabha question.

Bank consolidation principle: board-led public sector bank mergers with government and central bank as facilitators approved for SBI consolidation Bank consolidation follows the Narasimham Committee principle that board-initiated mergers of public sector banks proceed under the extant legal framework with Government and the central bank as facilitators; the Cabinet approved transfer of assets and liabilities of specified subsidiary and women's banks into the lead bank to achieve resource rationalisation, cost reduction, improved profitability, lower funding costs enabling better lending rates, enhanced productivity and customer service, and greater competitive capability.