State Bank of India (SBI), India’s top lender, said it will be at the mercy of Industrial & Commercial Bank of China Ltd (ICBC) unless the government allows takeovers to bridge an $800 billion (Rs32.8 lakh crore) gulf in assets.
“If ICBC comes to India, State Bank will be nowhere,” SBI chairman Om Prakash Bhatt had said in Kolkata on 12 May. SBI wants government approval to merge its seven units with itself to add 50% more branches and boost lending. While SBI extends one in six loans in India and controls almost a quarter of its banking assets, it only ranks 69th globally. ICBC 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. Before China opened up its banking sector in 2006, the government pumped $400 billion into banks to clear bad debts and permitted $44 billion of stock sales.
Size matters: Even though State Bank of India is the biggest lender in the country in terms of assets, it ranks only 69th globally.
“Overseas banks will certainly pose some threat, but it will take some time for them to become a serious threat,” said R.K. Gupta, who manages Rs350 crore in Indian assets at Credit Capital Asset Management in New Delhi. “It will be a good idea for Indian banks to consolidate to become stronger and more efficient.”
Citigroup Inc., HSBC Holdings Plc. and Standard Chartered 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. The three overseas lenders are restricted to a combined 163 branches in India, a fraction of SBI’s more than 9,400 outlets.
“For any foreign bank to compete, it needs penetration at that point of time,” said R. Rajagopal, who manages Rs300 crore as head of equities at DBS Cholamandalam Mutual Fund in Mumbai. “Most state-run banks have a wide reach and that gives them an advantage,” he added.