'Investment banking still in nascent stage'

While Indian banks have performed exceptionally well in retail banking, investment banking and credit derivatives are still in a very nascent stage in Indian banking, said Krishnamurthy Vaidyanathan, president and CEO, Athena Finance.

Delivering a lecture on 'I-banks Trends and Treasury Operations' at Tata Confluence 2004 at the Indian Institute of Management, Ahmedabad, Vaidyanathan said that a consolidation in the Indian banking industry is bound to happen.

Vaidyanathan said that the investment banking and credit derivatives by banks are highly regulated in India. But if the sectors are opened or deregulated, PSU banks could actually go out of business.

"Dervishes is a new and emerging era, but the problem with Indian PSU banks is that the top management is still old fashioned and has not been able to fully grasp the scope of the credit derivatives market. It is perhaps here that traders manage to dupe them in derivatives trading," said Vaidyanathan.

He also pointed out the flaws with the Reserve Bank of India. Though RBI is a great regulator and certainly among the best in Asia, RBI officials have still not understood treasury operations fully, Vaidyanathan opined.

Stating that the trend of most banks trying to be one-stop shops for companies and customers will finally lead to a massive consolidation, Vaidyanathan felt that Indian banks should adopt investment banking on a larger scale.