How undervalued are Indian banks?
Of The Year
ICICI Bank CEO & MD K V Kamath
Bankers are tweaking their products to attract customers.
Will they bite?
Urge To Merge
The only option left for weak & small co-operative
banks is to merge with bigger peers
Banks bounce back in 2005-06, posting a growth in
net profits and reducing NPAs
All the data you wanted on banks
on Co-operative banks
of PSU, Foreign & Private banks
Khandelwal: There is absolutely no doubt that the banks
in India would certainly participate in the growth story, but let
us get down to certain basics. Today skill sets are moving even
at senior levels from public sector banks to other banks. We have
to create skill sets and possibly go for alliances with other banks
and look at this sector a little more carefully.
has to be a collaborative approach between banks, government, regulator
on infrastructure financing. As such infrastructure projects are
quite risky in terms of completion and deadlines and, therefore,
the banks run additional risks of timely completion of these. There
are three kinds of risks interest rate risk, liquidity risk
and asset liability mismatches.
do we go about this? The RH Patil Committee has already raised the
issue of long-term funds. That is the key problem. I have requested
the RBI governor to set up a study group on how to tackle this problem.
Lal Kidwai: We need to make a dramatic change in
the way we are dealing with banks and banks relationship
with corporates to ensure that the growth momentum can continue.
formal financial institutions attract only half of Indias
household savings... We have got about $200 billion tied up
in gold and we dont have products like gold deposits
which can attract that saving.
same financial institutions allocate more than half of the
capital that they attract to the least productive areas like
the state-owned enterprises, agriculture and unorganised sectors.
This means that only 43 per cent of the commercial credit
is going to our most productive growth areas.
have an issue in terms of how we raise capital and allocate
it. We have great banks, many of which are present here, but
we still have an issue in terms of the robustness of the sector.
have got about $200 billion tied up in gold but we dont
have products like gold deposits which can attract those saving
country head, HSBC India
the top 10 banks in the world, there are two Chinese banks but there
isnt even a single Indian bank among the top 50. We have a
fast growing economy and the companies are truly becoming global
but there is no global bank.
have a vibrant equity capital market but we dont have a vibrant
corporate bond market. If we dont tackle that, the small lender
will get squeezed out because the large lenders will depend on the
banking system The inter-relationship between the markets and the
access to funds is another critical area which I believe will need
to be addressed. Finally, we still have an archaic payment technologies.
We do need to ensure that all of us work on the same technology
platform which enables quick and easy systems across the board.
We could, in fact, be looking at some base technology platforms
which will enable us to consolidate.
Shetty: There are problems of capital, consolidation,
long-term debt requirement, skill sets and the best practices. The
banking system has grown five-fold in terms of total business over
the last few years. The baseline growth of 7 to 9 per cent in the
next five years naturally calls for huge investments. It also calls
for huge amount of savings to be channeled. I am sure that the banking
system can meet these challenges.
Kamath: We had similar constraints in 1996 in an
environment which was much more gloomy when Indian industry
was rapidly going downhill. We recognised the need for infrastructure
and wondered where this money was going to come from. Our
ability to borrow then was not probably what it is today.
The banks were not as prepared in terms of meeting opportunities
as they are today. I start with the proposition that yes,
we can meet the challenge. That India is going to grow at
10 per cent to me is given. That it will grow for the next
10 years is also given.
years back we could pose the same question to the manufacturing
industry: Can it sustain the growth? It was collapsing then
and now the Indian manufacturing industry is a global force.
The firms are hugely competitive and they have done it the
hard way. They have literally cleaned up the shop floor and
re-geared themselves up, improved productivity and efficiency,
cut costs, done everything that needed to be done absolutely
is banking the unbanked 600 million people in India who really
dont have access to banking
MD and CEO, ICICI Bank
the last four years, corporate Indias growth was in the 20-30
per cent range. This is what is creating a spur in terms of what
banks need to respond in this context.
are two challenges. One is the corporate challenge. The second and
the bigger challenge is banking the unbanked 600 million people
in India who really dont have access to banking.
will always be constraint in a growing economy of our size. But
given the fact that there is a strong global interest in India,
we can blend domestic and global access. Our corporations have had
a free access to both global capital equity as well as global
debt. We need to get this sort of access to banks so that they can
manage their balance sheet better. We need to shore up the capital.
next challenge is increasing the operational and technology efficiency.
The government or the RBI cannot do anything about this. We have
to do this. I entirely agree with Naina when she says that this
is probably the right time to have technology consolidation. This
is an area where the majority shareholder, the Government, could
actually talk to its wards. Consolidation has to happen and this
is unavoidable even though we will move at our own pace. If we have
diverse technology platforms then the process will be pushed back
by another five years.
are not going to solve the problem by saying that we have a skill
sets problem. We have developed online training material and we
could create a large pool of human capital. A small step has been
taken by us and I am sure other banks will take similar steps. The
other challenge is creating reach and distribution to reach the
unbanked. The solutions that are required here are completely different
from what we have in urban India. It has to be a partnership model.
elements required for the growth are in place and others are being
built. We need to grow in an inclusive manner and it is not an impossible
challenge. I just want to remind myself that six years back we thought
growing a retail market was impossible. Indeed, every bank has now
taken steps to grow the retail consumer credit market. At this point,
inclusive growth for the 600 million unbanked appears to be an impossible
challenge. If we take care to scale ourselves properly, get the
right technology, the right people and then talk to the decision
makers to create a hybrid model of partnership which can reach out
to this mass, I think we will succeed.