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Banker
Of The Year BS
Round Table Innovate
& flourish The
Urge To Merge The
Vanishing NPAs Database |
The top 10 global banks list features three banks each from the US and Japan, two from the UK, and one each from France and Spain. Things don’t get much better even when we shift the focus to Asia (excluding Japan.) China Construction Bank Corporation is the Asian giant with a capital base of $35.6 billion. It is followed by its local peer Industrial & Commercial Bank of China (Tier I capital: $31.7 billion) and Bank of China ($31.4 billion). China dominates the Asian banking space occupying five of the top ten slots, Australia accounts for four slots and South Korea one. The Asian giant is four-and-a-half times bigger than SBI. The other Indian bank that features in the list of the Top 25 in Asia is ICICI Bank, at the 22nd slot. ICICI Bank’s capital base is much lower than that of SBI ($4.3 billion versus $5.9 billion). Punjab National Bank has less than half of ICICI Bank’s capital ($1.99 billion).Bank of Baroda is next with a Tier I capital of about $1.65 billion, followed by Canara Bank ($1.49 billion). Three other Indian banks have more than $1 billion worth of Tier I capital are Industrial Development Bank of India ($1.41 billion), HDFC Bank ($1.15 billion) and Bank of India ($1.01 billion). When it comes to two other parameters relating to scale – total assets and profit (pre tax) – Indian giants are pygmies on a global scale. SBI’s total assets are $155.72 billion against Citigroup’s $1.5 trillion. Similarly, ICICI Bank’s asset base is $61.90 billion and that of Punjab National Bank is $33.16 billion.
The one area where Indian banks are able to compete with their global peers is their return on assets (RoA). Among big Indian banks, ICICI Bank, PNB, Canara Bank and HDFC Bank have a return on assets of over 1 per cent, while SBI’s return on assets is 0.89 per cent. Among Indian banks, HDFC Bank has the highest return on assets – 1.71 per cent. This is lower than that of Citigroup (1.97 per cent) but much better than the RoA of HSBC (1.40 per cent). “Our banks are small and yet efficient but they must build the scale,” says a finance ministry official in the context of a fast growing economy. Indeed, a beginning has been made in that direction. IDBI’s acquisition of United Western Bank in October was the fourth M&A deal in the banking pace this year. The other three deals relate to the merger of Ganesh Bank of Kurundwad, another Maharashtra-based bank, with Federal Bank of Aluva, Kerala; takeover of Bharat Overseas Bank by public sector Indian Overseas Bank and that of Lord Krishna Bank by Centurion Bank of Punjab. For Centurion-BoP, it’s the second M&A deal in two years. In June 2005, Centurion Bank and Bank of Punjab, two new private banks that had not been in the best of health, were merged to create this entity. The main driver for such M&A deals are two critical rules of the Reserve Bank: All banks must have net worth of at least Rs 300 crore and they should have a wider investor base with no single entity holding more than 10 per cent stake. At least nine old private sector banks now have less than Rs 300 crore net worth. While two of them – Lakshmi Vilas and Citi Union Bank – are within sniffing distance of the threshold limit, quite a few of them are wide off the mark. For instance, Sangli Bank and Ratnakar Bank do not have even one-sixth of the required net worth. Similarly, the promoters’ stake in at least seven banks are higher than 10 per cent. They are IndusInd Bank, Development Credit Bank, Dhanalakshmi Bank, Tamilnadu Mercantile Bank, Catholic Syrian Bank, Nainital Bank and Bank of Rajasthan. Although there is no timeframe to achieve these twin targets, the merger momentum is likely to gain pace to weed out the fringe players and achieve some degree of scale by April 2009 when the sector is set to open up for foreign players. • HOME Business Standard • November 2006 |
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