Gartner sees consolidation of PSU banks

Gartner Inc has forecast significant consolidation in the Indian public sector bank ownership structure with the Indian government poised to increase the level of foreign ownership and also reduce its own direct ownership. It said mergers and acquisitions in the Indian PSU banks will gain momentum.

"We expect the first phase of consolidation to take place in the next three to five years time and the next phase in another four to five years," Gartner Inc managing vice-president John Weste said at the 'BFSI Summit 2004' here today.

A provider of research and analysis on the global information technology industry, Gartner predicted that State Bank Group (SBI and its seven associate banks) will become a single entity 7-10 years down the line.

Public sector banks (19 now) and new private sector banks (8) will consolidate themselves into four to six domestic banking entities.

The number of foreign banks and old private sector banks will come down from 42 to 16 and 24 to 16 respectively. Two to three development banks will also exist post-consolidation.

State Bank Group's market share in loans and advances is seen coming down from 29.5 per cent now to 20 per cent in the final phase.

The market share in total loans and advances of public sector banks (50.4 per cent) and new private sector banks (4.8 per cent), post-consolidation as "Indian domestic banks" is pegged at 48 per cent.

Foreign banks share of loans and advances is seen going up from eight per cent to 20 per cent. The share of old private sector banks is seen going down from 7.5 per cent to two per cent. Indian development banks will have a 10 per cent market share.

A weak capital position, the government's commitment to market forces, continuous striving for building strategic alliances and partnerships and increase in non-performing assets would be some of the main drivers of consolidation, he added.

The consolidation would help in providing better services and products, apart from widening the reach of the banks.

Consequent to the new shareholding, financial services sector would go through two major periods of consolidation and rationalisation.

As a result, Indian public sector banks would be more exposed to foreign and domestic market forces, possibly under even tighter regulatory and fiduciary control but with minimal ownership control, he said.

The government is expected to reduce its shareholding in all banks to zero, and refocus the capital into a specialised bank for development of Indian economy.

The focus would be on small to medium enterprises and industries based in the rural areas, Weste said.

However, he cautioned that "it is highly desirable for the Indian economy to maintain at least 60 per cent of the loans and advances within Indian hands while going through the consolidation phase".

The banking sector would also witness a transformation in next five years, with an increased stress on personnel, of about 80 per cent, than technology, he said.

India would stand to gain as the country has immense manpower, which would be a "better currency" than technology.

On the business trends for the next couple of years, he said that multi-national banks would increase its presence in the country by setting up more branches, which might even service the rural sector of the country.

HSBC, ABN Amro bank and JP Morgan would be some of the financial institutions that would set up base in the country, he said, adding "now a company can be called a global one only if it has a presence in India".