In the present scenario of the
banking industry, the concept
of banking consolidation has become a buzzword. Banks
merge for a variety of reasons, such as to increase efficiency through
exploitation of economies of scale or scope, to spread best-practice
techniques and expertise to less profitable participants, and to
reap the benefits of market share and decreases in competition.
Today, Indian banks are not able to compete internationally
in terms of funds' mobilization, credit disbursal, investments
and rendering of financial services due to the limited scope of their
business operations. The Indian banking industry is highly
skewed. This is evident from the fact that the market share of almost
80 banks in India is less than 2%. On comparing with global
standards, even the top five banks, which together command more than
50% market shares in India, are much smaller by global
standards. Moreover, they are not prepared to implement Basel II, due to
capital inadequacy. The list of top 1,000 banks of the world
issued by The Banker (London), July 2007 revealed that the State
Bank of India (SBI), and ICICI Bank occupied the
70th and 147th positions respectively in global
rankings. Even within the Asian region, the two banks occupied
11th and 25th places respectively. But,
India's largest banks are relatively smaller when compared to
other leading banks in Asia. No doubt, the banking industry has
witnessed a rapid change in the nature of its services, but still,
India, though the 13th largest economy of the world, does
not have a decently-sized bank that can compete globally.
Hrishikes Bhattacharyya, a Professor of finance and
banking at the Indian Institute of Management, Kolkata, does not think
that's such a good idea. "The Indian financial system is not yet
very strong to take on stiff foreign competition", he says. "There is
still not a level playing field between Indian banks and foreign
banks; the latter does not have developmental obligations like 40%
lending to the priority sector where returns are low." This is
possible only in case of bigger players (banks), which can afford to
invest in requisite technology and play globally to take the
advantage of global opportunities. Moreover, the
confidence of international investors in Indian
banks has increased manifold in recent times. This is offering
the country's banking sector a good opportunity to restructure
itself. An attempt has been made in this article to bring out
the very concept of banking consolidation with real life examples and survey
results, focusing on domestic as well as on the international front
and the role of policy makers in the process of ensuring better
coordination in support of consolidation process. |
