6 banks may merge to create two big players!!!!!!
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Kothari
Mar 22, 2013, 12:35:22 AM3/22/13
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Consolidation of public sector lenders back on agenda to build global-sized domestic banks
Public sector banks’ consolidation, discussed often during the past decade, is being attempted for the first time with finance minister P Chidambaram taking the initiative to create global-sized Indian banks.
Two possible alignments are being talked of. One is the merger of IDBI bank and Uco bank into Bank of Baroda. The other is Andhra Bank and Oriental Bank of Commerce merging with Bank of India. There is, however, no official confirmation.
Chidambaram recently told Parliament, “Not one of our banks is among the top 20 of the world. China has three. Today, for a loan size of say Rs 6,000 crore, not a single bank in the country can take the portfolio on the book.”
Public sector banks’ consolidation is certainly a focus area but one cannot say at this point when and how it will happen, a top finance ministry official told Financial Chronicle.
Stressing that there was a case for merger of banks and for having two or three global sized banks in India, Chidambaram had raised the matter of consolidation at a meeting of top bankers in Mumbai a couple of months ago.
State Bank of India is ranked 60th among the top 1,000 banks in the world. It may take SBI decades to reach the size of any top US banks if it has to grow only organically.
Some bankers who did not want to be identified, said there had been discussions on consolidation among State Bank of India, Bank of India and Bank of Baroda to create the world’s largest bank. But disagreement and the absence of a concrete came in the way.
If its subsidiaries are merged with it, SBI would be among the world’s top 10 banks. SBI appears now to be comfortable with the idea of absorbing all its subsidiaries through the process of merger and become a very large bank. Such a mega merger would be easier, particularly from the point of view of technology and human resource management.
With unions no longer as influential as before, SBI has already merged two of its associates: State Bank of Saurashtra and State Bank of Indore.
The remaining five subsidiaries -- State Bank of Hyderabad, State Bank of Mysore, State Bank of Bikaner & Jaipur, State Bank of Patiala and State Bank of Travancore -- are likely to be merged with SBI in a phased manner.
The buzz in the market is that Bank of Baroda would become a large bank with the merger of IDBI and Uco bank, which would also have a much larger presence in the northern and eastern region. Bank of Baroda has a dominant presence in the western region and a sizeable presence in the south.
Likewise, Bank of India, again a dominant bank in the western region, will improve its presence in the north, thanks to Oriental Bank of Commerce, and in the south, thanks to Andhra Bank, should the two mergers happen.
Between 1990 and 2000, the banking sector witnessed around a dozen mergers, which were basically between strong banks and weak lenders. Besides, more than 15 consolidations have taken place among healthy banks for commercial purposes. The acquisition of the Centurion Bank of Punjab by HDFC Bank in 2008 for Rs 9,510 crore was the biggest merger in domestic banking.
The government has always held the view that it would not force banks to merge but would also not stand in the way. Instead it would act as a facilitator if some banks come up with merger proposals, as the need of the hour is large banks for funding huge projects, particularly in infrastructure. Now that the consolidation buzz has started, analysts say the finance ministry is keen to push it quickly.
As much $1 trillion is to be spent on infrastructure in the next five years and nearly 50 per cent of it is to be under public-private partnership.
Past bank mergers indicate that the two biggest challenges have been technology and human resource management, Bank unions fear there could be cultural issues as well and widespread transfers of employees of smaller and weak banks if they are merged with strong banks. Overlapping branches also could lead to job losses.
With RBI having called for applications for setting up new private sector banks, consolidation in the sector is inevitable, particularly among public sector banks, says a government official.
The talk of bank consolidation first started in the early nineties when the Narasimham committee recommended that there should be three or four big banks, led by SBI, to create global-sized banks, followed by national banks with a countrywide presence and then local and rural banks.
Two possible alignments are being talked of. One is the merger of IDBI bank and Uco bank into Bank of Baroda. The other is Andhra Bank and Oriental Bank of Commerce merging with Bank of India. There is, however, no official confirmation.
Chidambaram recently told Parliament, “Not one of our banks is among the top 20 of the world. China has three. Today, for a loan size of say Rs 6,000 crore, not a single bank in the country can take the portfolio on the book.”
Public sector banks’ consolidation is certainly a focus area but one cannot say at this point when and how it will happen, a top finance ministry official told Financial Chronicle.
Stressing that there was a case for merger of banks and for having two or three global sized banks in India, Chidambaram had raised the matter of consolidation at a meeting of top bankers in Mumbai a couple of months ago.
State Bank of India is ranked 60th among the top 1,000 banks in the world. It may take SBI decades to reach the size of any top US banks if it has to grow only organically.
Some bankers who did not want to be identified, said there had been discussions on consolidation among State Bank of India, Bank of India and Bank of Baroda to create the world’s largest bank. But disagreement and the absence of a concrete came in the way.
If its subsidiaries are merged with it, SBI would be among the world’s top 10 banks. SBI appears now to be comfortable with the idea of absorbing all its subsidiaries through the process of merger and become a very large bank. Such a mega merger would be easier, particularly from the point of view of technology and human resource management.
With unions no longer as influential as before, SBI has already merged two of its associates: State Bank of Saurashtra and State Bank of Indore.
The remaining five subsidiaries -- State Bank of Hyderabad, State Bank of Mysore, State Bank of Bikaner & Jaipur, State Bank of Patiala and State Bank of Travancore -- are likely to be merged with SBI in a phased manner.
The buzz in the market is that Bank of Baroda would become a large bank with the merger of IDBI and Uco bank, which would also have a much larger presence in the northern and eastern region. Bank of Baroda has a dominant presence in the western region and a sizeable presence in the south.
Likewise, Bank of India, again a dominant bank in the western region, will improve its presence in the north, thanks to Oriental Bank of Commerce, and in the south, thanks to Andhra Bank, should the two mergers happen.
Between 1990 and 2000, the banking sector witnessed around a dozen mergers, which were basically between strong banks and weak lenders. Besides, more than 15 consolidations have taken place among healthy banks for commercial purposes. The acquisition of the Centurion Bank of Punjab by HDFC Bank in 2008 for Rs 9,510 crore was the biggest merger in domestic banking.
The government has always held the view that it would not force banks to merge but would also not stand in the way. Instead it would act as a facilitator if some banks come up with merger proposals, as the need of the hour is large banks for funding huge projects, particularly in infrastructure. Now that the consolidation buzz has started, analysts say the finance ministry is keen to push it quickly.
As much $1 trillion is to be spent on infrastructure in the next five years and nearly 50 per cent of it is to be under public-private partnership.
Past bank mergers indicate that the two biggest challenges have been technology and human resource management, Bank unions fear there could be cultural issues as well and widespread transfers of employees of smaller and weak banks if they are merged with strong banks. Overlapping branches also could lead to job losses.
With RBI having called for applications for setting up new private sector banks, consolidation in the sector is inevitable, particularly among public sector banks, says a government official.
The talk of bank consolidation first started in the early nineties when the Narasimham committee recommended that there should be three or four big banks, led by SBI, to create global-sized banks, followed by national banks with a countrywide presence and then local and rural banks.
Thanks & Regards,
Abhishek Kothari
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