Chennai:
Gartner Inc, the US-based research and analysis organisation
has predicted merges and acquisitions among nationalised
banks. Gartner forecasts significant consolidation in
the ownership structure of Indian public sector banks
with the Indian government poised to increase the level
of foreign ownership while reducing its own direct ownership.
Consequent to the new shareholding, the financial services
sector will go through two major periods of consolidation
and rationalisation. As a result, the nationalised banks
will be more exposed to foreign and domestic market forces,
possibly under even tighter regulatory and fiduciary control
but with minimal ownership control.
Gartner also envisages government reducing its shareholding
in all public sector banks to zero and refocus the capital
into a specialised bank focused on the development of
the Indian economy, particularly the emerging small-to-medium
enterprises and rural-based industries.
Opining on this trend, John Weste, managing vice president,
consulting, at Gartner says, "It is highly desirable
for the Indian economy to maintain at least 60 per cent
of loans and advances within Indian hands while going
through the consolidation phase".
According to Gartner some of the key drivers for consolidation
are:
Key Drivers
- Weak
Capital Position
- Government's
commitment to banking sector reforms and market forces
- Continuously
building strategic alliances and partnerships
- NPA's
Weak
capital position
The
weak capital position of the Indian banking system is
largely a reflection of growing asset-quality problems
stemming from weak underwriting and credit management
systems, and the vulnerabilities of the Indian banking
sector to the impact of globalisation. The asset-quality
position of India's banking system also suffers from regulations
in the area of priority sectors lending.
However,
India's new private-sector banks are stronger, and have
a superior asset quality. While foreign banks, which maintain
the highest capital ratios in India, both in terms of
published ratios and after adjusting for the loan-loss
reserve shortfall, are in a significantly stronger position
as compared to their Indian counterparts.
Government's
commitment and market forces
While
the Indian government is committed to major financial
sector reforms, it still needs to recognise its own financial
limitations and the likely impact of these reforms. The
government may need to consider opening up its market
to enable foreigners to acquire local banks outright in
order to allow Indian banks to raise additional capital
resources and raise the capitalisation of Indian banks
to international standards.
Continuously
building strategic alliances and partnerships
As
the financial services sector undergoes major changes,
many of the local banking groups have cemented strategic
partnerships / alliances in order to pursue specific market
niches and / or to expand their core offerings to a wider
market. Banks will continuously need to align with domestic
and global players to offer new products and services
to their customers.
Non
performing assets (NPA)
The
old private-sector banks are slightly better placed than
the public sector banks with respect to capitalisation.
The government
banks' cumulative capital base is almost wiped out when
more conservative NPA and loan loss estimates are adopted.
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