New Delhi, May 8: The government is exploring the possibility of merging Dena Bank with Canara Bank. This is one among the several mergers the government is planning between PSU banks.

The government holding in Canara Bank is over 73 per cent, while its stake in Dena Bank is little over the statutory cap of 51 per cent.

Post-merger, the government holding in the new entity is likely to come down to about 65 per cent. The deal is most likely to be a cash-less transaction. Sources said Canara has appointed Ernst & Young to advise it on the proposed amalgamation. Canara and Dena have denied holding any merger talks.

Bangalore-based Canara Bank, which has 2,542 branches, is strong in the south, while Mumbai-based Dena Bank with its 1,050 branches has a large presence in Maharashtra, Gujarat and in Chhattisgarh.

If the merger goes through, Canara Bank will overtake Punjab National Bank as the country’s third largest bank after the State Bank of India and ICICI Bank. The government is also planning to merge all unlisted subsidiaries of the SBI. However, bank trade unions are opposed to the move.

Analysts believe a merger between HDFC Bank and its parent, the Housing Development Finance Corporation, is also on the cards. “With consolidation becoming the order of the day and since other financial institutions have converted into banks through reverse mergers, the HDFC merger seems a probability,” analysts said.

ICICI merged with ICICI Bank in 2001, while in 2004, IDBI became a bank by consolidating IDBI Bank with itself. “The ministry of finance has also directed the SBI to look at merging its unlisted subsidiaries,” sources said.

The unlisted subsidiaries of the SBI are the SBI Hyderabad, Indore, Patiala and Saurashtra. The government feels merging the unlisted subsidiaries will not be difficult. Regulatory approvals are expected to be quick since they are wholly owned subsidiaries.

The SBI and its subsidiaries already have a unified IT platform and single ATM network, and this will help during the merger exercise. The sources said the merger would not lead to branch closures because of region-specific demarcation of their operations.

The SBI is the country’s largest bank with a 19 per cent market share of deposits and advances in 2005-06. The share of the SBI and its seven associate banks is 25 per cent. If the unlisted subsidiaries are merged with the SBI, the combined market share will be 22-24 per cent.