It may be premature to talk of mergers and consolidation among banks in India, when a majority of the population is still outside the purview of banking services, says K.C. Chakrabarty, chairman and managing director of Punjab National Bank (PNB), India’s fourth largest by assets.
“Merger time has not come. About 60% of the population does not have a bank account,” said Chakrabarty, who recently took over as head of PNB. Financial inclusion is a prerequisite for mergers, he added. While PNB, being one of the bigger banks in India, has not shut the door on acquisitions, “no acquiring will be done at the cost of shareholder value,” added Chakrabarty.
The chairman’s response comes in the context of finance minister P. Chidambaram often urging public sector banks to consider mergers as a way to build scale. Finance ministry officials have said they are open to mergers of public sector banks but a proposal has to be initiated by the boards of banks that seek one.
According to Samir Bali, director, Global Financial Services, Ernst & Young, a case could be made for using banks’ consolidation to achieve scale and growing in untapped sectors to grow.
Indian banks, he said, would need to bolster their balance sheet size if they want to get a sizeable share of international mergers and acquisitions triggered by Indian companies. “The argument, however, cuts both ways. There is one in favour of consolidation and another in favour of size through growth,” added Bali.
PNB plans to reach out to the unbanked section of the population, speeding up the use of technology to reach them, said Chakrabarty who is coming off a successful stint at Indian Bank, where he raised money from the capital markets.