The Hindu Business Line : `M&As in banks will be order of the day'

THE Deputy Governor of Reserve Bank of India, Mr V. Leeladhar, has said that mergers and acquisitions in the banking sector are going to be the order of the day.

Addressing the members of the Kanara Chamber of Commerce and Industries (KCCI) here on Friday, he said, "We are slowly but surely moving from a regime of `large number of small banks' to `small number of large banks'. The new era is going to be one of the consolidation around identified core competencies."

Citing the successful merger of HDFC Bank and Times Bank, and StanChart and ANZ Grindlays, he said these factors have demonstrated that trend towards consolidation is almost an accepted fact. Mr Leeladhar said, "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."

`Size does matter'

He said size is increasingly becoming important for the global banks, as it is crucial to improve efficiency. State Bank of India, the largest bank in the country, is not even 1/10th in size of the world's 9th largest bank, Sumitomo Mitsui. "Therefore the notion that SBI or ICICI Bank can compete in the international arena seems farfetched at the moment," he said.

Quoting the Indian Banks' Association's report, `Banking Industry Vision 2010', he said that there would be greater presence of international players in Indian financial system. Some of the banks in the country will become global players in the coming years. He said the new mantra for Indian banks is to go global in search of new markets, customers and profits. "Let us not forget that the competition is not only on foreign turf, but also in the domestic field as well from foreign banks operating in India," he said.

`Technology is the key'

Stating that technology has thrown new challenges in the banking sector, he said new issues have started cropping up, which is going to pose certain problems in the near future. The new entrants in the banking are with computer background. However, they would acquire the banking experience over a period of time. Whereas the middle and senior level people have rich banking experience but their computer literacy is at low level.

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