Customers want to be part of a larger, efficient organization

Customers want to be part of a larger, efficient organization

Munbai: David Rhodes, managing director for the financial institutions practice at Boston Consulting Group, sees consolidation in the banking industry as a logical outcome as the Indian economy matures and customers demand bigger and better banks.

In an interview, Rhodes also spoke about the problems the euro zone may face on account of deficits and demographic profiles. Edited excerpts:

What is your take on banking consolidation in India?

I don’t know what is in the mind of regulators, but if we look at the history of the world, I would expect some amount of consolidation. Recognizing any perception about too big to fall doesn’t take away the need for consolidation. Customers will be interested to be part of a larger and more efficient organization. India is going through the period of building new banks, growing with the market—you are witnessing explosive growth. When growth slows, and the economy matures, over that period you clearly expect some consolidation. Because consolidation is not inconsistent with making sure the banking system is safe.

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How do you see the euro zone crisis playing out?

Depends on when the countries start reducing their deficits. People are still not grabbing this one—the trade imbalances means that there is a high risk of protectionism. Sitting on the fence is a demographic time bomb for Europe, Japan and actually even the United States, where the dependency ratio is manageable now, but is going to switch over in the next 20 years.

The high amount on pension and entitlements is going to increase dramatically as the dependency ratio increases. We have not even begun to seek the answer.

Another option is immigration. In Europe, if you have immigration between European countries where there is no net population growth, it’s a zero-sum game. This is where Indian growth has got a great advantage. Another option is immigration (from) outside Europe, but that is a political hot potato.

You talked about the advantage that India has.

India has got two good things. You are increasing productivity...what drives economic growth? Increased productivity and increased labour force. You have a growing population that is young and you are getting more productive.

Is there a chance that India could become the world’s sweatshop?

India is it’s own sweatshop, let it be clear. The history of this is the world exported low-cost jobs to India and China and other countries, and enjoyed low inflation. But guess what? These people passed on the benefit to their children who had better education. Once you get educated, the aspiration is much higher. The educated generation started working for global challengers, companies in India, China and Asia. These companies have very high technological know-how, doing research and development locally, producing high-tech products, which ship to the West. So it is the creation of not just low-skill jobs, but now the higher-skill, middle-class jobs.

What role do you see for Indian multinationals?

India is going the same way as companies in the West started. You are growing entrepreneurs who are looking outside and that is the way to go