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More banks on merger wait
- Centre signals easier rules to spur private sector consolidation

New Delhi, June 10: Private banks are now chanting the merger mantra. Even as the government is planning to merge state-run banks into mega-entities, their private-sector counterparts are mapping out their own takeover plans.

“You can expect a wave of consolidation in private banking too,” says Rana Kapoor, who sold off his stake in Rabo Bank to launch Yes Bank.

Finance ministry officials and bankers concede that current Reserve Bank regulations on mergers and acquisitions are restrictive but they expect rules to soften soon. “The government is likely to allow easier consolidation in the private sector once a wave of consolidation sweeps PSU banks,” said M. Y. Khan, former chairman and managing director of Jammu & Kashmir Bank.

Khan, who has been a member of several government panels on banking, said: “The 10 per cent voting cap on foreign investment will be lifted ... This is a great time for Indian banks. The economy is doing well. Investment in infrastructure has grown and the government has been very encouraging on financial sector reforms. Foreign funds and bankers also realise this.”

Bankers like Kapoor and Khan do not see the Left attitude towards reforms as a major hurdle. These parties had opposed consolidation of state-run banks and dilution of RBI norms on capping foreign banks’ voting rights in Indian private sector banks. “If you see the way Bengal is progressing, you get the feeling the Left is not at anti-reforms at all,” said Kapoor.

India has been trying to attract overseas investment to the nation’s 31 privately-run banks, many of which are constrained by capital shortages and limited geographical reach. Most of them need money to compete with bigger rivals. These private banks, however, account for nearly 17 per cent of deposits and nearly a fifth of credit.

Foreign banks have grabbed only 5.1 per cent of all bank deposits and 7 per cent of their credit. “The natural inclination to grow through acquisitions among MNC banks is strong,” said Khan.

Foreign funds find the Indian banking sector lucrative. Ajay Lal, managing director of The Hong Kong-based AIF Capital, said: “We are bullish on the Indian banking sector. It makes good investment sense.”

The Left is, however, not very comfortable with the idea of foreign ownership of privately-owned banks as it feels the financial sector will fall prey to MNC control if easy acquisitions and mergers are permitted.

The Congress-led government feels this is the right time to allow consolidation as WTO negotiations on financial services will ultimately force India to open up to MNCs.

Sources say General Electric is studying the market and may take over a private bank once the regulatory regime is relaxed. HSBC Holdings, Europe's biggest bank by market value, has a 14.7 per cent stake in UTI Bank.

Khan said, “I am sure if any of these foreign banks have a viable business plan (concerning an Indian private sector bank), the RBI will not object ... the regulator will satisfy itself but not stop the process.”

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