The government is working on a consolidation agenda with a view to creating 3-4 global-sized banks and reduce the number of state-owned lenders to about 12, an official told news agency PTI on Monday.
As part of a three-tier structure, the official said, there would be at least 3-4 banks of the size of SBI, the country's largest lender.
Some region-centric banks like Punjab and Sind Bank and Andhra Bank will continue as independent entities while some midsize lenders would also co-exist, the official added.
Finance Minister Arun Jaitley had said last month that the government is "actively working" towards consolidation of public sector banks but declined to provide details, saying this was price-sensitive information.
Enthused by the success of the SBI merger, the finance ministry is considering clearing another such proposal by this fiscal if bad loan situation comes under control by then, the PTI report said.
It said that according to former RBI governor C Rangarajan, the system will have some large banks, some small banks, some local banks and so forth. "What is needed in the system is variety," the report said, quoting Rangarajan.
The report said that one of the possibilities is that large public sector banks (PSBs) like Punjab National Bank, Bank of Baroda, Canara Bank and Bank of India could try looking for potential candidates for acquisition, quoting another official who did not wish to be identified.
Factors like regional balance, geographical reach, financial burden and smooth human resource transition have to be looked into while taking a merger decision, they said, adding a very weak bank should not be merged with a strong one "as it could pull the latter down".
In the last consolidation drive, five associate banks and Bharatiya Mahila Bank (BMB) became part of SBI on April 1, 2017, catapulting the country's largest lender to among the top 50 banks in the world.
State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore(SBT), besides BMB, were merged with SBI.
With the merger, the total customer base of SBI reached around 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs across the country. The merged entity began operations with a deposit base of more than Rs 26 lakh crore and advances level of Rs 18.50 lakh crore.
The government in February had approved the merger of these five associate banks with SBI. Later in March, the cabinet approved merger of BMB as well.