The Hindu Business Line : RBI favours old pvt banks consolidation

OLD private sector banks are under the central bank's lens for signs of possible weakness, so that they can be nudged towards consolidations if necessary, according to Ms K.J. Udeshi, Deputy Governor, Reserve Bank of India.

Mergers and acquisitions in the banking sector are going to be the order of the day as demonstrated by the successful mergers of HDFC Bank and Times Bank, Standard Chartered and ANZ Grindlays, said Ms Udeshi speaking at Jaipur, on the occasion of the Nani Palkhivala Memorial Oration.

"We are also looking for such signs in respect of a number of old private sector banks, many of which are not able to cushion their NPAs, expand their business and induct technology due to limited capital base," she said.

The banking sector is moving away from a regime of "large number of small banks" to "small number of large banks", the new era is going to be one of consolidation around identified core competencies, she added.

The Finance Minister, Mr P. Chidambaram, also recently said that the Government is in favour of consolidation in the banking industry to enable banks achieve `world-class' status.

The Indian Banks' Association, under the Chairmanship of Mr V. Leeladhar, recently constituted a committee to examine the various facets that could lead to consolidation between banks.

Among the old private sector banks, some of the names that have been doing the rounds as `potential acquisitions' are, Lord Krishna Bank, Lakshmi Vilas Bank, Karur Vysya Bank, Karnataka Bank and United Western Bank.

In fact, a number of leading public sector banks and new-age private sector banks are understood to be in the market scouting for `suitable' acquisitions, based on geographical advantages and other business and cultural synergies.

According to Ms Udeshi, the future may usher in large banking institutions, if the development financial institutions opt for conversion into commercial banking in line with the recommendation of the Second Report of the Narasimham Committee.

In the context, financial institutions and non-banking financial companies setting up banks and other ventures relating to insurance, merchant banking, mutual funds, housing finance and investment companies either as subsidiaries or as joint ventures, the Deputy Governor underscored the need for consolidated supervision.

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