Indian Scene in Banking Consolidation

An Analysis of Bank Consolidation Trends

in Rural India

KARTHIK BR
JUNED AHMED
 Objectives & Reasons

• To take advantage of economies of scale & scope.

• It facilitates both product and geographic
diversification from asset as well as liabilities side.
• To ward of threats of disintermediation
• Bigger entities have an inherent advantage.
• To improve their risk management capabilities.
 How Consolidation helps Indian Banks

• Indian banks are fast globalising.

• The confidence of international investors has increased manifold
in recent times.
• To compete internationally in terms-funds’ mobilisation, credit
disbursal, investments & rendering of financial services
• To offset the decline in profitability.
• M&A are driven by governments in order to restructure the
banking systems.
 Beware OF Bank Consolidation
“The size of Indian banks is not good enough, we
need to consolidate....
• Can Indian banks get a lot bigger quickly?

• Should they do so?

• Do we need bigger banks at a time when others want
their banks to shrink?
E.g: The recent death anniversary of Lehman Brothers
 Risk Involved
• Mergers may give rise to monopolistic/oligopolistic
structures and there is a possibility of lower
competition.
• Larger entities are likely to neglect small customers
and concentrate exclusively on High Net Worth
Individuals.
• There is a possibility of a loss of local feel and
character of a bank
• Heterogeneity of work cultures, systems & processes
may become serious impediments
 Future Scenario
• Foreign banks will have the opportunity to own
up to 74% of Indian private sector banks.
• with huge capital reserves, cutting-edge
technology, best international practices & skilled
personnel.
• acquiring decent “size” by global standards,
robust risk management capabilities & internal
control systems, advanced, technology, skilled
manpower, sound marketing practices, etc..
Impact on Poverty