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Banking Industry Need For Consolidation
Banking Industry Need For Consolidation
Phases
Major Changes
Birth of Joint stock Banking Companies. Introduction of deposit banking & Bank Branches. State Bank of India formed out of Imperial Bank. 20 SCBs nationalized in two phases.
Nationalization of Imperial Bank & 20 other scheduled commercial banks Phase 2 Era of Nationalization & Consolidation
Phase- 3 Introduction of Indian Financial & Banking sector Reforms & Partial Liberalization
Interest rates deregulated. Statutory preemption of resources eased more private players entry. FDI ceiling for the banking sector increased to 74 % from 49 % More liberal branch :Licensing followed.
BUSINESS DIVISION
RETAIL BANKING
WHOLESALE BANKING
BUSINESS DIVISION
TREASURY OPERATIONS
NPAS IN BANKS
NPAs are a sum of those loans that are vulnerable to
Industrial problem
Hike in interest rates
1,660
19.4%
1,587
10.6%
603
11.0%
1,148
996 839 781 179
0.7%
6.0% 19.7% 6.4% 2.1%
Consolidation
Refers to combining two or more firms through purchase, merger or acquisition.
Phase
Pre-nationalization
Number of Mergers
46
1969-1992
1993-2012
Nationalization
Post-reform
13
21
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
I. Synergy: E.g.- Oriental Bank of Commerces merger with Global Trust Bank. Benefits: OBC gained 104 branches, 276 ATMs, 1400
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
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.