The banking sector in India is grappling with high NPA woes and insufficient capital and in line with it is constantly considering consolidation. First in this line was the largest state-run lender, SBI which merger all its subsidiary companies into its arms. And now, the government is trying to rope in small players that include Dena Bank and Vijaya Bank within the larger, Canara Bank.

Read about consolidation in the SBI bank, here.

A senior government official is quoted in one of the leading business daily report saying " "Discussions are on between banks. There is a possibility that first Vijaya and Dena merge, before being taken over by Canara Bank"

In terms of market capitalization, Canara Bank ranks fourth only after SBI, BOB and PNB. The proposal is set to go forward after the monsoon session of the parliament is finished in August.

The others likely to follow the consolidation suit include Indian Overseas Bank, Syndicate and Indian Bank.

In the run upto consolidation in the banking sector, government is primarily eyeing, 3-4 banks of the size of SBI, some of the mid-sized banks and 2 or 3 specialized banks.

The government is looking at a three-tier structure for state-run lenders with around 10-12 banks as against the existing 21. "There have to be at least three banks of the size of the country's largest lender SBI. And then we can have mid-sized banks and a few specialised banks catering to particular sectors," said one of the official familiar with the development.

"It is going to be a politically active session with the GST (goods and services tax) rollout and the presidential election. Besides, it will also give time for banks to work out the possible issues that may arise," said the official.

Arun Jaitley review the condition of the State-run banks said that the government is active on the consolidation sphere but did not provided any information on the price-sensitive issue.

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