MUMBAI:
India's banking sector may be getting ready for a wave of consolidation as the
country tries to build institutions of world-class proportions. Four big
state-run banks — State Bank of India, Punjab National Bank, Bank of Baroda and
Bank of India — have already begun an exercise to identify takeover targets to
gain access to franchises that would augment their capabilities, said three top
bankers familiar with the move.
The top management of the four banks are in the process of preparing a blueprint that would explain the rationale for absorbing one or two entities, said the people cited above, none of whom wanted to be named.
Employees at these state-run banks are engaged in the exercise after finance minister Arun Jaitley gave the lenders the go-ahead to decide how they would strategise to remain relevant in the emerging economic scenario.
"We are hearing from the corridors of finance ministry that there is seriousness on consolidation of banks,'' said an executive from one of the top four banks.
"The sense we are getting is that first there could be merger of at least one SBI associate bank with SBI to kick off the consolidation process."
Although no names of likely acquisition targets are being discussed at these four banks, the key conditions for a smaller bank will be regional, technological and cultural advantages.
For instance, a bank such as Bank of Baroda, which does not have a presence in the East, may prefer one from that part of the country.
State-run banks have weakened over the years as governments have treated them as an organ of the administration and used them to push their social agenda.
Meanwhile, lenders in neighbouring China have acquired scale while those in India are puny by comparison, giving them little clout in global markets. The economic downturn, with growth having almost halved from the peak, has exposed the fault lines in the system.
The top management of the four banks are in the process of preparing a blueprint that would explain the rationale for absorbing one or two entities, said the people cited above, none of whom wanted to be named.
Employees at these state-run banks are engaged in the exercise after finance minister Arun Jaitley gave the lenders the go-ahead to decide how they would strategise to remain relevant in the emerging economic scenario.
"We are hearing from the corridors of finance ministry that there is seriousness on consolidation of banks,'' said an executive from one of the top four banks.
"The sense we are getting is that first there could be merger of at least one SBI associate bank with SBI to kick off the consolidation process."
Although no names of likely acquisition targets are being discussed at these four banks, the key conditions for a smaller bank will be regional, technological and cultural advantages.
For instance, a bank such as Bank of Baroda, which does not have a presence in the East, may prefer one from that part of the country.
State-run banks have weakened over the years as governments have treated them as an organ of the administration and used them to push their social agenda.
Meanwhile, lenders in neighbouring China have acquired scale while those in India are puny by comparison, giving them little clout in global markets. The economic downturn, with growth having almost halved from the peak, has exposed the fault lines in the system.
The parlous financial position of the government has left banks capital starved
— the allocation for this year is tiny compared with the amount needed to meet
Basel III standards. And, to access capital from the market, the state run
banks need a strategy to turn more profitable. Currently, they are labouring
under bad debt on account of companies finding it difficult to repay loans
because of the slump.
"Government has made it clear that they will not give any capital,'' said one of the Bankers "Banks that have the capital and the capability to raise capital could look at acquisitions,'' he said, while adding "Nothing has reached the drawing board. Banks are only doing all kinds of permutations and combinations.''
To be sure, state-run bank consolidation has been discussed for nearly a decade, but little progress has been made, except for shotgun weddings that were aimed at rescuing ventures in poor shape. Inertia among banks, cultural issues and fears of trade union unrest he ..
"Government has made it clear that they will not give any capital,'' said one of the Bankers "Banks that have the capital and the capability to raise capital could look at acquisitions,'' he said, while adding "Nothing has reached the drawing board. Banks are only doing all kinds of permutations and combinations.''
To be sure, state-run bank consolidation has been discussed for nearly a decade, but little progress has been made, except for shotgun weddings that were aimed at rescuing ventures in poor shape. Inertia among banks, cultural issues and fears of trade union unrest he ..
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RBI order on 'Small Bank' not ideal for present needs: Samit Ghosh-Business Standard
Financial inclusion is not about geography, but people
Samit Ghosh, the
widely-respected founder and Managing Director of Ujjivan Financial Services, a microfinance
institution, has said that RBI's new recommendations on a 'Small Bank' will not help in financial inclusion.
"The solution lies in promoting specialised banks for financial inclusion which can provide directly - savings, loans and remittances, and as third party service provider (insurance and pension). (It is) similar to the 'Small Bank' recommended by the RBI recently but without any geographical restrictions. The restriction should be on occupations such as workers, micro-entrepreneurs and marginal farmers," Ghosh toldBusiness Standard in an exclusive interaction.
According to him, these banks need to ensure that 90 per cent of their customers are the working poor and specialised banking institutions like these successfully exist around the world including in Bangladesh, Pakistan and Sri Lanka.
"We pride ourselves in having one of the world's (most) advanced banking system(s). It is high time we promote specialised banks for financial inclusion and close this vital gap in the organised financial service sector," he said.
Ghosh, who is also president of the Microfinance Institutions Network, said the myth of financial inclusion which needs to be broken is that of merely providing a no-frills bank account which are largely inactive or a microfinance loan.
"Real financial inclusion is by providing a comprehensive set of services which meet the total needs of the working poor. Their financial needs are basic - a safe place to save, credit for business, farming, animal husbandry, emergencies, education, family needs and housing, remit funds to support families and business, life & medical insurance for protection against frequent exigencies they face and pension to support them at old age," he said.
The mindset of our regulators, according to him has not changed, from focussing on geography by mechanically continuing to push for branches in unbanked rural areas with a population of less than 10,000 and this has not helped much.
"Some banks have a token programme for the poor which are not part of their mainstream business. Consequently, the poor remain unserved and have to resort to money lenders, fly-by-night finance companies to save and send physical cash home with friends and relatives. We have branhes in rural areas but they fail to serve marginal farmers and rural poor. (They) mostly serve farmers who have landholdings exceeding two acres," he said.
"The solution lies in promoting specialised banks for financial inclusion which can provide directly - savings, loans and remittances, and as third party service provider (insurance and pension). (It is) similar to the 'Small Bank' recommended by the RBI recently but without any geographical restrictions. The restriction should be on occupations such as workers, micro-entrepreneurs and marginal farmers," Ghosh toldBusiness Standard in an exclusive interaction.
According to him, these banks need to ensure that 90 per cent of their customers are the working poor and specialised banking institutions like these successfully exist around the world including in Bangladesh, Pakistan and Sri Lanka.
"We pride ourselves in having one of the world's (most) advanced banking system(s). It is high time we promote specialised banks for financial inclusion and close this vital gap in the organised financial service sector," he said.
Ghosh, who is also president of the Microfinance Institutions Network, said the myth of financial inclusion which needs to be broken is that of merely providing a no-frills bank account which are largely inactive or a microfinance loan.
"Real financial inclusion is by providing a comprehensive set of services which meet the total needs of the working poor. Their financial needs are basic - a safe place to save, credit for business, farming, animal husbandry, emergencies, education, family needs and housing, remit funds to support families and business, life & medical insurance for protection against frequent exigencies they face and pension to support them at old age," he said.
The mindset of our regulators, according to him has not changed, from focussing on geography by mechanically continuing to push for branches in unbanked rural areas with a population of less than 10,000 and this has not helped much.
"Some banks have a token programme for the poor which are not part of their mainstream business. Consequently, the poor remain unserved and have to resort to money lenders, fly-by-night finance companies to save and send physical cash home with friends and relatives. We have branhes in rural areas but they fail to serve marginal farmers and rural poor. (They) mostly serve farmers who have landholdings exceeding two acres," he said.
http://www.business-standard.com/article/company/rbi-order-on-small-bank-not-ideal-for-present-needs-samit-ghosh-114072700726_1.html
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