banking industry need for consolidation
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Excellent PPTTRANSCRIPT
Presented To: Presented By:Ms. Harleen Mahajan Poonam KhuranaAsst. Professor Rashi SachdevaPCTE Ruchi Sharma
Ruchi Wadhwa
MBA- 2C
PRESENTATION ON
BANKING INDUSTRY
CALLS FOR
CONSOLIDATION
INDIAN BANKING INDUSTRY
• Banks act as the store as well as the power house of
the country’s wealth.
• Governed by the Banking Regulation Act of India,
1949 and monitored by the Reserve Bank of India.
• Size - Rs 66.7 trillion (US$ 1.22 trillion).
• Public sector banks account for
70% of the Indian banking assets.
Evolution of Banking Industry
Beginning of institutional banking with 3 joint stock banks. Phase 1
Pre- Nationalization Phase
•Birth of Joint stock Banking Companies.•Introduction of deposit banking & Bank Branches.
Trigger Events Phases Major Changes
Nationalization of Imperial Bank & 20 other scheduled commercial banks
Phase 2Era of Nationalization & Consolidation
• State Bank of India formed out of Imperial Bank.• 20 SCB’s •nationalized in two phases.
Acceptance of recommendations of the Narsimham Committee.
Phase- 3Introduction of Indian Financial & Banking sector Reforms & Partial Liberalization
• Interest rates deregulated.• Statutory preemption of resources eased more private players entry.
Hike in F DI ceiling
Phase- 4Period of Increased Liberalization.
• FDI ceiling for the banking sector increased to 74 % from 49 %• More liberal branch :Licensing followed.
Phase 4 continues more liberalization
expected
Structure of Indian Banking Industry
RETAILBANKINGRETAIL
BANKING
BUSINESSDIVISION
OTHER BANKING
BUSINESSES
TREASURYOPERATIONS
WHOLESALE BANKING
BUSINESS DIVISION
NPA’S IN BANKS
NPAs are a sum of those loans that are vulnerable to
go bad or default out of the total lending a bank has
done.
NPA’s as major challenge for Banking Industry
The banking sector has been facing the serious
problems of the rising NPAs.
One of the main causes of NPAs in the banking
sector is the Directed loans system.
Political interference, manipulation, misuse of fund
& and unreliable customer.
Causes of Increasing NPAs
Improper selection of borrower's activities
Industrial problem
Hike in interest rates
Low level of expertise
Loans to priority sector
Recession in the market
Government policies
Non Performing Assets of Public Sector Banks
Name of the Bank Total NPA’s (in Rs. Cr.) Percentage of which are of Micro & Small Enterprise
Allahabad Bank 42,907 17.1%
State Bank of India 23,074 13.6%
Punjab National Bank 4,379 30.8%
Bank of India 4,357 37.8%
Canara Bank 2,982 18.6%
IDBI Bank Ltd. 2,785 16.3%
Oriental Bank of Commerce
1,921 18.8%
Total NPA’s in all Public Sector Banks: Rs. 71,047 Cr
Non Performing Assets of Private Sector Banks
Name of the Bank Total NPA’s (in Rs. Cr.) Percentage of which are of Micro & Small Enterprise
ICICI Bank Ltd 9,816 0.9%
HDFC Bank Ltd 1,660 19.4%
Axis Bank Ltd. 1,587 10.6%
Kotak Mahindra Bank Ltd 603 11.0%
Total NPA’s in all Private Sector Banks: Rs. 17,971 Cr
Name of the Bank Total NPA’s (in Rs. Cr.) Percentage of which are of Micro & Small Enterprise
Standard Chartered Bank
1,148 0.7%
HSBC Ltd 996 6.0%
Citibank 839 19.7%
Barclays Bank 781 6.4%
Deutsche Bank 179 2.1%
Total NPA’s in all Foreign Sector Banks: Rs. 5,065 Cr
Non Performing Assets of Foreign Sector Banks
Consolidation
Refers to combining two or
more firms through purchase,
merger or acquisition.
The ownership is transferred to
the new company that is assets &
liabilities of the firms are absorbed by new company.
Consolidation through M&A
M& A is used as a strategy to achieve a:
larger size
faster growth
to become more competitive.
According to RBI’s Report:
Maximum mergers are in financial services (15.7 per
cent) and the acquisition activity was also the largest
(17.9 per cent) in this sector.
Duration Phase Number of Mergers
1961-1968 Pre-nationalization 46
1969-1992 Nationalization 13
1993-2012 Post-reform 21
Number Of Mergers From 1961-2012
Post Reform Mergers
Forced Mergers 13
Market driven Mergers 5
Convergence of Financial Institutions into Banks
2
Regulatory Compulsions 1
Some successful consolidations in Banking Industry
Benefits of Consolidation
Withstand external assaults more effectively
Banks with complimentary expertise
Broadened geographical & regional spread (un-served area)
Market image and brand name
Easy to venture overseas
Single window service
Saving
Effective absorption of new technologies
Need for ConsolidationIn
Banking Industry
I. Synergy:
E.g.- Oriental Bank of Commerce’s merger with Global
Trust Bank.
Benefits:
• OBC gained 104 branches, 276 ATM’s, 1400
employees & 1 million customer base.
Drawback:
•Merger resulted in low CAR for OBC, which was
detrimental to solvency.
II. Growth:
E.g.- ICICI Bank Ltd. Acquires Bank of Madura
(March '01)
Benefits:
• The branch network of the merged entity increased
from 97 to 378.
• ICICI Bank gained additional customer base of 1.2
million & asset base of crore.
III. Strategic motives
E.g.- HDFC Bank Acquires Centurion Bank of Punjab
(May '08)
Benefits:
• The merged entity has an asset size of Rs. 109718 crore
(7th largest in India).
• Improved distribution with 1148 branches & 2358
ATM’s.
IV. Market Entry
E.g.- Standard Chartered’s merger with ANZ Grindlays
Benefits:
• Standard Chatered became largest foreign bank in
India with over 56 branches & more than 36% shares in
credit card.
V. Regulatory Intervention
Eg- Bank of Baroda Acquires South Gujarat Local Area
Bank Ltd. (June 04)
Benefits:
The SGLAB customers were effectively transferred to
more secure & bigger bank.
Risks Associated
Inefficient handling of bigger units.
De-motivation among employees.
HR Issues.
Indian banking industry is presently at a crucial
juncture.
With increasing globalization in sight, there have
been calls for greater consolidation in the industry from
both the government as well as regulator.