By Sumit Sharma, Bloomberg
Mumbai: State Bank of India (SBI), the nation’s biggest, wants to grow through acquisitions before global rivals including Industrial & Commercial Bank of China Ltd. (ICBC) are allowed to buy local lenders, Chairman Om Prakash Bhatt said.
“If ICBC comes to India, State Bank will be nowhere,” Bhatt told reporters in Kolkata on 12 May. State Bank wants government approval to merge with seven units to add 50% more branches and boost lending.
While SBI extends one in six loans in India and controls almost a quarter of Indian banking assets, it only ranks 69th globally. ICBC, based in Beijing, is worth more than the entire Indian banking sector seven months after it sold shares in the world’s biggest public offering.
Finance Minister P. Chidambaram has said banks must merge to cut costs before overseas financial services firms are allowed to add branches and clients by taking control of private banks in 2009. Citigroup Inc., HSBC Holdings Inc. and Standard Chartered Plc. are now restricted to a combined 163 branches in India, a fraction of State Bank’s more than 9,400 outlets.
“We will do (buy banks) if allowed to do so,” Bhatt said. “We need service and products, they (overseas banks) have to get a network, service and products.”
Before China opened up its banking sector in 2006, the government pumped $400 billion into banks to clear bad debts and permitted $44 billion (Rs18,0214 crore) of stock sales. Citigroup, HSBC and Royal Bank of Scotland Group Plc have all acquired stakes in Chinese banks, helping them set up credit-card, consumer finance and lending businesses to compete on a global scale.
Demand for banking services in China and India, home to a combined 2.4 billion people, or a third of the world’s population, is soaring as companies and individuals borrow to sustain the two fastest-growing major economies. China’s $2.5 trillion economy grew at 10.7% in the year ended December, surpassing an expected 9.2 % expansion in India for the year ended 31March.
Accelerating loan demand helped State Bank on 12 May report fourth-quarter profit increased by 75%. Net income rose to Rs14.93 billion ($364 million) in the three months ended 31 March, compared with Rs8.53 billion a year earlier. That was higher than the Rs10.87 billion median estimate of five analysts surveyed by Bloomberg News.
The company and others banks benefited from a 28% loan growth in the year to March, following 35% average annual expansion in the previous two years. SBI which accounts for 15.5% of all loans in India, also gained from raising lending rates.
SBI shares, which gained 6.7% over the past six months, traded Rs52.8 or by 4.6% to Rs1,202 at 10:00 a.m., on the Bombay Stock Exchange.
SBI owns 100% of four of its seven associate banks; State Bank of Hyderabad, State Bank of Indore, State Bank of Saurashtra and State Bank of Patiala. It owns 75 % stakes in State Bank of Bikaner & Jaipur and State Bank of Travancore and 92.33% of State Bank of Mysore.
Bhatt said the government may merge the associate banks into a single competitor, or allow them to sell shares and then merge with State Bank. The seven banks held assets of Rs1.4 trillion as of March 2004, according to SBI website.
State Bank has assets of less than $156 billion, compared with New York-based Citigroup’s assets of about $1.9 trillion. India’s banking sector had about $676 billion of assets as of March 2006, compared with China’s $5.7 trillion.
Almost all sectors of Indian economy need more funds to grow. ICICI Bank Ltd. Chief Executive Officer K.V. Kamath estimates an investment pipeline of $500 billion is required for infrastructure and manufacturing projects over the next three years. Tata Steel Ltd. and Hindalco Industries Ltd. needed to borrow from overseas banks to fund a combined $18 billion of acquisitions this year.
ICICI Bank on 28 April said it plans to sell Rs200 billion of shares to meet growing demand for funds.
State Bank isn’t alone in scouting for acquisitions. ICICI Bank, India’s biggest bank by market value, formally acquired Sangli Bank last month to gain 186 branches and access to prosperous farmers in the west of the country.
Canara Bank, the nation’s fourth biggest by assets, on 2 May announced plans to buy a lender in the western and northern parts of the country. Chairman M.B.N. Rao declined to name any bank.
“Consolidation is in the best interest of banks,” said Rao. “Banks need to be large, huge and big,” as competition from overseas banks increases and as companies and infrastructure projects seek large loans.