The government will set up a committee to come out with a strategy for consolidation in the state-run banking sector, Finance Minister Arun Jaitley said.
More than two dozen state-run banks dominate country's banking sector. They also hold around 85 percent of the bad loans in the sector.
Speaking to reports the minister said that banks have favoured the idea of consolidation after annual brainstorming event of senior officials from finance ministry, RBI and banks.
Government was also considering an employee stock option plan for the state-run banks, Jaitley added.