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Banking on consolidation

Banking on consolidation
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First Published: Tue, Jun 03 2008. 08 28 PM IST
Updated: Tue, Jun 03 2008. 08 28 PM IST
New Delhi: Come 2009 and foreign banks may be treated on par with domestic ones. They will also have to dilute 26% of equity in the Indian stock market. But more importantly, they may be allowed greater freedom to acquire private banks in India. Many participants at Mint’s South Banking Conclave felt that consolidation is unavoidable, and would be the only way forward. However, many were also concerned that consolidation could so easily lead to cartelization. Says PT Kuppuswamy, chairman & CEO of Karur Vysya Bank, “SBI recently said that they will not give tractor loans. If in the futuer 4-5 banks join together and say they will not give tractor loans then what will happen to the economic growth of the country.”
According to figures released in 2007, India has 177 banks and over 73,000 branches. 3000 branches are opened every year in the country. Many bankers also think that the industry is too fragmented for meaningful consolidation to take place. B Sambamurthy the chairman and managing director of Corporation Bank says, “Excluding state bank of India if you merge the top 5 banks in the country you get a market share of 20%.”
Top five banks have 60% market share in developed economies. While in India, even with hundreds of banks, only 31% of the population holds a bank account. Big banks will help mobilize more savings, but they seem to shy away from targeting rural India which accounts for 58% of disposable income.
Says M.S. Sundara Rajan, chairman and managing director of Indian Bank, “People still go to non institutional borrowers paying an interest of 3650%.. they borrow 100 rupees in the morning and pay 300 in the evening.”
India has only 0.52 branches for every 10,000 people while the global average for the same is 2 branches. Many bankers feel that the need of the hour is expansion… rather than whole sole consolidation. They suggest, an ideal situation will be to have 3 or 4 big players with a number of smaller banks to cater to rural and agrarian India.
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First Published: Tue, Jun 03 2008. 08 28 PM IST