"The government will retain the public sector character of the banks in the context of consolidation or merger between two state-owned banks," Finance Minister P Chidambaram said after inaugurating SIDBI's new development centre in Mumbai.

The government would like to give more autonomy to banks but they must also improve efficiency, he said.

"Though a few weeks back, the government had announced series of measures to give more powers to banks the government would like to extend larger degree of autonomy," he said.

In the context of merging two state-owned banks the government would not dilute the public sector character of the merged entity, Chidambaram said adding there would not be any retrenchment of employees during consolidation but the employees would be suitably redeployed in the merged entity.

"We will not allow any closure of bank branches in the event of consolidation. On contrary, more branches would be opened," he said.

However, the close-by branches of the merged entity might be closed, he said. Competition, consolidation and convergence would be the key drivers of the banking sector, he added.