Given the credit market crisis gobbling iconic Wall Street banks, Indian banking regulator, through its farsighted vision, has taken a much graded and extremely cautious approach in opening the doors for the foreign players...The English dictionary defines bank as ‘store’, ‘depository’, ‘reservoir’, among others. It naturally implies that this ‘reservoir’, meant to be tapped on a rainy day, be protected by strong hands if that is to be used for the betterment of the society in general and industry and commerce in particular. Who could provide more strength to this bank than the might of the sovereign government?!
However, much to chagrin of large global banks, Indian banks are sizing up. In fact, many of them have almost shaped up already. The largest of the Indian banks, State Bank of India (SBI), is scaling up in size by merging its second subsidiary, the smallest among the six – State Bank of Indore – after amalgamating State Bank of Saurashtra last year. The merger would take SBI much ahead and inspire awe among competitors as the next in line would hardly be half in terms of assets and credit book size. Many other banks are scaling up too by infusing capital after almost all of them have achieved very high level of computerised banking system.
April 2009, which feared for opening of foreign banks’ jaws trying to gobble up Indian banks, is already a past and soon April 2010 will be knocking on the doors. So far, no casualty is reported on the Indian side, while many of those that were trying in predator’s boot are themselves starved of cash and are looking for state capital transfusion in return for greater regulation and oversight.
Even the recent global credit market crisis and resulting failure of iconic investment banks in the western world has only reinforced the belief that the banks must remain in strong hands, else they will be at the mercy of the adventurous managers who, in order to earn fat bonuses, would not mind drilling holes in those strong walls guarding the depositors’ ‘trust’ and permanently damaging the ‘reservoir’.
Moreover, as the Indian banking industry is very fragmented, therefore the moves by SBI are watched closely not only by the ministry mandarins, but also by the banking hawks. After the successful merger of two subsidiaries, other five might just go in one large chunk, lock stock and barrel. Eventually, all its subsidiaries are set to merge to form a colossal bank. At the same time, other PSU banks are also being capitalised to meet the challenges ahead.
Under such circumstance, it is highly probable that the regulator, the Reserve Bank of India, would come forward with a road map for consolidation, especially among the PSU banks, and allow mergers and amalgamations, which would further strengthen the banks and at the same time rationalise the duplication of bank branches. This would also make our banks strong enough before foreign banks gain muscle to compete effectively.
Moreover, when large global banks worldwide are struggling to cope up with investment losses, increasing delinquencies and shrinking asset book, Indian banks are busy building muscle. Therefore, in such a scenario, Indian banks need not bear any fears from the foreign banks that may not be in a position to commit long term funds for takeovers/amalgamations in a hurry.
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Source :
IIPM Editorial, 2010.
An Initiative of
IIPM,
Malay Chaudhuri and
Arindam chaudhuri (
Renowned Management Guru and
Economist).
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