Two days after finance ministry officials met heads of five PSU banks over the issue of consolidation, Dena Bank chairman and managing director D L Rawal met financial services additional secretary G C Chaturvedi on Friday.

The two are learnt to have discussed consolidation among other issues, sources said.

On November 18, chief of five leading banks — Punjab Nation Bank, Bank of Baroda, Canara Bank, Oriental bank of Commerce and Union Bank of India — had met Chaturvedi to explore the possibilities of creating few large PSU lenders through mergers and acquisitions.

According to Canara Bank chairman and managing director A C Mahajan, "we are looking at geographical synergy so that where we are not present we should have an inorganic growth."

The bank is deficient in the western region basically in states of Maharashtra and Gujarat, he had said.

"We would start due diligence process soon," he had said, adding it would be done by internal team first.

Bangalore-based Canara Bank, which has a network 2,960 branches, is strong in the southern India, while Mumbai-based Dena Bank with its about 1,100 branches has a large presence in Maharashtra, Gujarat and in Chhattisgarh.

About two years ago, Canara Bank had appointed global consultancy firm Ernst & Young for due diligence to merge Dena Bank with itself. However, not much headway could be made on the matter.

The proposed merger between the two lenders would proceed only after the boards of the two banks clear the matter. Besides, shareholders' approval is also required for the merger along with that of employees, the sources said.

The government holding in Canara Bank is over 73 per cent, while in Dena bank GoI has little over the statutory cap of 51 per cent, which restricts the bank from raising capital by diluting stake for its expansion plans.

The Finance Ministry is in favour of voluntary consolidation of state-run banks to create mega banking institutions to counter foreign competition. But on the flip side, banks would have to first convince their unions to accept any merger.

Apart from the merger of State Bank of Saurashtra into the parent company SBI and the plans of another subsidiary — State Bank of Indore — for the same, not much is happening on the consolidation front of PSU banks currently.