MERGER MANIA V BY S.SRINIVASAN PRESIDENT NATIONAL UNION OF BANK EMPLOYEES (NUBE) No Amount of Consolidation Will Give Indian Banks A Global Size If we look at the world's 10 largest banks, the comparison becomes even more glaring. Last year, Citigroup's, the world's biggest banking conglomerate, Tier I capital was $74 billion. Its asset base was $1,484 billion. Each of the banks in the global top 10 list - JP Morgan Chase & Co, HSBC Holding, Bank of America, Credit Agricole, Royal Bank of Scotland, Mitsubishi Tokyo, HBOS and BNP Paribas - has a higher capital and asset base than the entire Indian banking industry. Last year, BNP Paribas, which has the lowest capital base among the global top 10, had a Tier I capital of $35.7 billion, marginally higher than the Indian banking industry's collective Tier I capital of $35.28 billion. Similarly, HBOS, which has the lowest asset base among the global top 10 banks, is almost one-and- half times bigger than the total assets of the Indian 1
Transcript
MERGER MANIA V
BY
S.SRINIVASAN
PRESIDENT
NATIONAL UNION OF BANK EMPLOYEES
(NUBE)
No Amount of Consolidation Will Give Indian Banks A Global Size
If we look at the world's 10 largest banks, the comparison becomes even more glaring. Last year, Citigroup's, the world's biggest banking conglomerate, Tier I capital was $74 billion. Its asset base was $1,484 billion.
Each of the banks in the global top 10 list - JP Morgan Chase & Co, HSBC Holding, Bank of America, Credit Agricole, Royal Bank of Scotland, Mitsubishi Tokyo, HBOS and BNP Paribas - has a higher capital and asset base than the entire Indian banking industry.
Last year, BNP Paribas, which has the lowest capital base among the global top 10, had a Tier I capital of $35.7 billion, marginally higher than the Indian banking industry's collective Tier I capital of $35.28 billion. Similarly, HBOS, which has the lowest asset base among the global top 10 banks, is almost one-and-half times bigger than the total assets of the Indian banking industry. But this also means that no amount of consolidation will give Indian banks a global size in the foreseeable future.
World's Largest Banks 2012
The list below shows the largest banks in the world based on market capitalization as of January 20, 2012. Industrial & Commercial Bank of China (ICBC) is the largest bank in the world by market capitalization value. Chinese banks occupy the top positions. The People’s Republic now has 4 of the top 7 banks, including the top 2.
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Rank Bank CountryMarket cap
($b, 20/1/2012)
1.Industrial & Commercial Bank of China (ICBC)
China 240.95
2.China Construction Bank
China 195.85
3. Wells Fargo & Co US 160.72
4. HSBC Holdings UK 150.90
5.Agricultural Bank of China
China 141.73
6. JP Morgan Chase US 140.95
7. Bank of China China 128.80
8. Itau Unibanco Brazil 88.17
9. Citigroup US 86.67
10. Commonwealth Australia 82.62
11. Royal Bank Canada Canada 76.56
12. Bank of America US 71.77
13.Toronto-Dominion Bank
Canada 70.53
14. Banco Santander Spain 67.32
15. Westpac Australia 65.77
16.Mitsubishi UFJ Financial
Japan 64.25
17. Banco Bradesco Brazil 63.91
18. Sberbank of Russia Russia 59.36
19. ANZ Banking Australia 58.48
20. Bank of Nova Scotia Canada 58.16
21. Standard Chartered UK 57.68
22. National Australia Bank Australia 56.04
23. US Bancorp US 54.85
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Rank Bank CountryMarket cap
($b, 20/1/2012)
24. BNP Paribas France 54.21
25. Goldman Sachs Group US 53.53
26. UBS Switzerland 52.00
27.Bank of Communications
China 48.11
28. China Merchants Bank China 45.15
29.Sumitomo Mitsui Financial
Japan 43.62
30. BBVA Spain 42.98
31. Banco do Brasil Brazil 42.19
32. Barclays UK 42.07
33. Deutsche Bank Germany 39.17
34. Bank of Montreal Canada 37.93
35.Mizuho Financial Group
Japan 35.82
36. Morgan Stanley US 35.49
37.Banco Santander (Brasil)
Brazil 34.97
38. Lloyds Banking Group UK 34.76
39. Nordea Bank Sweden 33.57
40. China Citic Bank China 31.40
41. PNC Financial Services US 31.37
42. Credit Suisse Group Switzerland 31.29
43.Canadian Imperial Bank of Commerce (CIBC)
Canada 30.76
44. Intesa Sanpaolo Italy 29.00
45. BOC Hong Kong Hong Kong 28.13
46.Shanghai Pudong Development Bank
China 27.76
47. Bank of New York US 25.80
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Rank Bank CountryMarket cap
($b, 20/1/2012)
Mellon
48. Royal Bank of Scotland UK 25.17
49. Hang Seng Bank Hong Kong 24.49
50. State Bank of India India 24.48
Top Banks in the World in terms of total assets
Below is a list of the largest banks in the world as of December 31, 2011. The top 10 banks have about $24.7 trillion in combined assets. Two of the Top 5 largest banks are Japanese institutions. Deutsche Bank is currently the largest bank in the world in terms of total assets. The Bank employs over 100,000 people and serves over 20 million customers through a network of about 3,100 branches worldwide. With a market share of 15.6%, Deutsche Bank is also the largest currency trader in the world. Mitsubishi UFJ Financial Group (MUFG) is the second largest bank in the world by assets. The company's main subsidiaries include: Bank of Tokyo-Mitsubishi UFJ, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities and UnionBanCal Corporation. HSBC Holdings is the third largest global financial institution with about 90 million customers worldwide.
Rank Bank CountryTotal Assets
($b)Date
1 Deutsche Bank Germany 2,802.71 31/12/2011
2 Mitsubishi UFJ Financial Group Japan 2,741.52 31/12/2011
3 HSBC Holdings UK 2,555.58 31/12/2011
4 BNP Paribas France 2,545.34 31/12/2011
5 Japan Post Bank Japan 2,542.77 31/12/2011
6 Industrial & Commercial Bank of China China 2,455.59 31/12/2011
7 Crédit Agricole Group France 2,434.24 31/12/2011
8 Barclays PLC UK 2,430.74 31/12/2011
9 Royal Bank of Scotland Group UK 2,342.66 31/12/2011
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Rank Bank CountryTotal Assets
($b)Date
10 JPMorgan Chase & Co. USA 2,265.79 31/12/2011
11 Bank of America USA 2,129.05 31/12/2011
12 Mizuho Financial Group Japan 2,098.18 31/12/2011
13 China Construction Bank China 1,948.66 31/12/2011
14 Bank of China China 1,876.98 31/12/2011
15 Citigroup Inc USA 1,874.91 31/12/2011
16 Agricultural Bank of China China 1,852.79 31/12/2011
17 Sumitomo Mitsui Financial Group Japan 1,805.09 31/12/2011
18 ING Group Netherlands 1,656.74 31/12/2011
19 Santander Group Spain 1,620.92 31/12/2011
20 Societe Generale France 1,530.09 31/12/2011
21 UBS Switzerland 1,510.95 31/12/2011
22 Lloyds Banking Group UK 1,508.86 31/12/2011
23 Groupe BPCE France 1,473.88 31/12/2011
24 Wells Fargo USA 1,313.87 31/12/2011
25 UniCredit S.p.A. Italy 1,200.31 31/12/2011
26 Credit Suisse Group Switzerland 1,117.02 31/12/2011
27 China Development Bank China 992.002 31/12/2011
28 Rabobank Group Netherlands 947.618 31/12/2011
29 Norinchukin Bank Japan 927.620 31/12/2011
30 Nordea Sweden 927.588 31/12/2011
31 Goldman Sachs Group USA 923.225 31/12/2011
32 Commerzbank Germany 857.132 31/12/2011
33 Intesa Sanpaolo Italy 827.889 31/12/2011
34 BBVA Spain 774.097 31/12/2011
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Rank Bank CountryTotal Assets
($b)Date
35 National Australia Bank Australia 772.699 31/12/2011
36 Royal Bank of Canada Canada 735.665 31/10/2011
37 Bank of Communications China 731.618 31/12/2011
38 Commonwealth Bank of Australia Australia 716.693 31/12/2011
39 Toronto-Dominion Bank Canada 671.717 31/10/2011
40 Westpac Banking Corporation Australia 667.632 31/12/2011
41 Natixis France 657.564 31/12/2011
42 KfW Germany 640.841 31/12/2011
43 Standard Chartered UK 599.070 31/12/2011
44 Danske Bank Group Denmark 596.785 31/12/2011
45 Bank of Nova Scotia Canada 562.983 31/10/2011
Note: The exchange rate on December 30, 2011, has been used for translation.
Top Banks in the World, Q2 2011
The following are the largest and best banks in the world in terms of total assets. The top 10 banks have over $24.4 trillion in combined assets and top 50 banks – about $67 trillion. Three of the Top 7 largest banks are UK institutions. For the third year in a row, BNP Paribas is the largest bank in the world. In 2008, it was the fourth after Royal Bank of Scotland, Barclays and Deutsche Bank. BNP Paribas's four domestic markets are France, Italy, Belgium and Luxembourg. The Bank operates in more than 80 countries and employs over 205,000 people.
Rank Bank CountryTotal Assets
($b)Date
1 BNP Paribas France 2,792.10 30/06/2011
2 HSBC Holdings UK 2,690.90 30/06/2011
3 Deutsche Bank Germany 2,681.30 30/06/2011
4 Mitsubishi UFJ Financial Group Japan 2,479.50 30/03/2011
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Rank Bank CountryTotal Assets
($b)Date
5 Barclays PLC UK 2,395.30 30/06/2011
6 Japan Post Bank Japan 2,325.77 30/03/2011
7 Royal Bank of Scotland Group UK 2,319.90 30/06/2011
8 Industrial & Commercial Bank of China China 2,304.40 30/06/2011
9 Bank of America US 2,264.40 30/06/2011
10 JPMorgan Chase & Co. US 2,246.80 30/06/2011
11 Credit Agricole SA France 2,236.80 30/03/2011
12 Citigroup US 1,956.60 30/06/2011
13 Mizuho Financial Group Japan 1,942.60 30/06/2011
14 China Construction Bank China 1,818.40 30/06/2011
15 ING Group Netherlands 1,798.60 30/06/2011
16 Banco Santander Spain 1,785.80 30/06/2011
17 Bank of China China 1,776.47 30/06/2011
18 Agricultural Bank of China China 1,773.11 30/06/2011
19 Sumitomo Mitsui Financial Group Japan 1,652.82 30/06/2011
20 Societe Generale France 1,590.72 30/06/2011
21 Lloyds Banking Group UK 1,570.59 30/06/2011
22 Groupe BPCE France 1,532.53 30/06/2011
23 UBS Switzerland 1,469.46 30/06/2011
24 UniCredit S.p.A. Italy 1,331.88 30/06/2011
25 Wells Fargo US 1,259.73 30/06/2011
26 Credit Suisse Group Switzerland 1,160.72 30/06/2011
27 Commerzbank Germany 991.085 30/06/2011
28 Rabobank Group Netherlands 963.910 30/06/2011
29 Intesa Sanpaolo Italy 934.576 30/06/2011
30 Nordea Bank Sweden 859.851 30/06/2011
31 Norinchukin Bank Japan 839.80 31/03/2011
32 Morgan Stanley US 830.747 30/06/2011
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Rank Bank CountryTotal Assets
($b)Date
33 BBVA (Banco Bilbao Vizcaya Argentaria) Spain 824.389 30/06/2011
34 China Development Bank China 775.20 31/12/2010
35 Royal Bank of Canada Canada 765.396 31/07/2011
36 Dexia Belgium 750.521 30/06/2011
37 National Australia Bank Australia 708.360 31/03/2011
38 Toronto-Dominion Bank (TD Bank Group) Canada 696.503 31/07/2011
39 Natixis France 656.665 30/06/2011
40 CM10-CIC Group France 688.158 30/06/2011
41 Bank of Communications China 672.583 30/06/2011
42 Westpac Australia 647.538 30/09/2011
43 KfW Bankengruppe Germany 646.807 30/06/2011
44 Commonwealth Bank of Australia Australia 645.288 30/06/2011
45 Danske Bank Denmark 607.573 30/06/2011
46 Bank of Nova Scotia Canada 594.750 31/07/2011
47 ANZ Banking Group Australia 574.362 30/09/2011
48 Banque Federative du Credit Mutuel (BCFM) France 566.252 30/06/2011
Top 100 largest banks in the World, measured by total assets at the end of 2008
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The table below is a list of the Top 100 largest banks in the World, measured by total assets at the end of 2008. Three of the Top 5 largest banks are UK institutions. With assets of over US$3.5 trillion, Royal Bank of Scotland (RBS) is the largest bank in the World by assets and the fifth largest by market capitalization. RBS was founded in 1727 and is headquartered in Edinburgh, Scotland, United Kingdom.
Rank Bank CountryTotal assets ($b)
Date
1 Royal Bank of Scotland Group UK 3,514.58 31.12.2008
2 Barclays UK 3,004.33 31.12.2008
3 Deutsche Bank Germany 2,895.50 31.12.2008
4 BNP Paribas France 2,729.23 31.12.2008
5 HSBC UK 2,527.47 31.12.2008
6 JP Morgan Chase US 2,175.05 31.12.2008
7 Credit Agricole France 2,173.89 31.12.2008
8 Citigroup US 1,938.47 31.12.2008
9 Mitsubishi UFJ Financial Japan 1,922.18 31.03.2008
10 ING Group Netherlands 1,858.31 31.12.2008
11 Bank of America US 1,817.94 31.12.2008
12 UBS Switzerland 1,740.27 31.12.2008
13 Mizuho Financial Japan 1,537.92 31.03.2008
14 Societe Generale France 1,485.89 31.12.2008
15 Banco Santander (1) Spain 1,464.74 31.12.2008
16 UniCredit Italy 1,459.1 31.12.2008
17Industrial and Commercial Bank of China (ICBC)
China 1,425.72 31.12.2008
18 Wells Fargo US 1,309.64 31.12.2008
19 China Construction Bank China 1,104.01 31.12.2008
20 Sumitomo Mitsui Financial Japan 1,115.06 31.03.2008
112 Banca Popolare di Milano Italy 53.094 31.12.2008
113 Charles Schwab US 51.670 31.12.2008
114 Samba Financial GroupSaudi Arabia
47.693 31.12.2008
115 Al Rahji BankSaudi Arabia
43.593 30.09.2008
(1) - In December 2008, Banco Real and Alliance & Leicester were incorporated. (2) - Citizens Financial Group, Inc. is a subsidiary of Royal Bank of Scotland Group.
Note:
A COMPARISON BETWEEN SBI AND BANK OF AMERICA BY THE VIRTUE OF NATURAL MONOPOLY STATUS
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BANK OF AMERICA V/S
STATE BANK OF INDIA Basis of Comparisons
Bank Of America State Bank of India
Inferences
Ownership Private ltd.Governments of
India
The ownership has given SBI a monopoly status, whereas, BoA has been able to consolidate its position over the years by the multiple ownership and innovative scale of operations and services.
Employees 2,86,951 2,00,299
Despite cut in the number of employees by SBI, being a public banking company, it has tended to deploy a large number of employees, while, BoA has flexible employment structure, mainly, professionals who aren’t even full time workers.
RevenueU.S $110.22 Billion
in the 2010-11.U.S $29.05 Billion in
2010-2011.
The Revenue structure is more inclined towards institution building in SBI, while in BoA, revenue margins from commercial sources is buoyant.
Total Assets US $2.265 Trillion US $ 323.0 Billion
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BANK OF AMERICA V/S
STATE BANK OF INDIA Basis of Comparisons
Bank Of America State Bank of India
Inferences
Total Equity US $231.444 Billion US$ 18.5 Billion
Profits/Net Income U.S. $2.238 Billion. U.S $2.6 Billion
Founded 1998 (As a Bank of corp.) 1 July, 1955
Area ServedWorld Wide (150
Countries)
India & Over 131 Overseas (32
Countries)
The scale of operations for BoA have expanded upon the fact, that, world over BoA has grown because of its acceptability as a technically sophisticated banking entity and also because of the demonstration effect in the developing nations, particularly, taking it as a status symbol for people. SBI is still to be known internationally, though, Indian Banks are told be sound banking units in the international markets based upon their credit worthiness, though more based upon the credit and worthiness that is infused by the decree than commercialization.
No. of Consumers 50 Million Not Known
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BANK OF AMERICA V/S
STATE BANK OF INDIA Basis of Comparisons
Bank Of America State Bank of India
Inferences
No. of ATMs 19,00021,000 along with the
Associates (4,500)
No. of Branches 6,100 26,500
With a large web of presence in India and its interiors, SBI much overwhelms BoA as a Banking entity with its ‘seen and bought’ and also cheap and approachable services. Whereas, BoA has not penetrated, logs into only the worthy customers arena.
Areas of operations Urban
Urban As well as Rural
(Planning to cover 1,00,000 Villages in
Two Years)
Customers, at places, differ across beliefs and customs as well as mindsets, along with income levels with SBI, whereas, with an only customer base into commercial zones, BoA has been able to cater only to the urban sect.
Associates Banks
State Bank of Bikaner & JaipurState Bank of HyderabadState Bank of MysoreState Bank of PatialaState Bank of Travancore
Holdings12.2% U.S Deposits
of consolidated holdings
33% Govt. of India Deposits
With a major set of government deposits, SBI has tended to be
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BANK OF AMERICA V/S
STATE BANK OF INDIA Basis of Comparisons
Bank Of America State Bank of India
Inferences
virtuous to have a continuous flow of liquidity into its accounts.Moreover, while holdings in BoA are in minority stake, the returns accruing to the government are comparatively more than what is expected of SBI to yield it to the GoI.
Presence in Fortune 500 Companies
Yes, Bank of America serves clients in more than 150 countries and has a relationship with 99% of the U.S. Fortune 500 companies and 83% of the Fortune Global 500.As of 2010, Bank of America is the 5th largest company in the United States by total revenue, as well as the second largest non-oil
Yes (Only Bank in India). Rank: 282 on it net assets.
Fortune 500 status to an Indian Bank implies that the stocks of such banks are readily convertible into cash. Bank of America serves clients in more than 150 countries and has a relationship with 99% of the U.S. Fortune 500 companies and 83% of the Fortune Global 500. As of 2010, Bank of America is the 5th largest company in the United States by total revenue, as well as the second largest non-oil company in the U.S. (after Wal-Mart
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Positive Fallouts
between SBI &
BOA Positive
Fallout
SBI BOA
Transactions 56 million per day
Profitability U.S $2.6(Billion) U.S. $ 2.238(Billion) Area of operations Urban as well as rural Urban Holdings 12.2% U.S Deposits 33% Govt. of India
Deposits No. of Branches 26,500 6,100 No. of ATMs 21,000 19,000 Area Served India & India & Over 131
Overseas (32 Countries) Worldwide
Negative Fallouts between SBI & BOA Negative Fallout
SBI BOA
No. of Employees 2,00,299 2,86,951 Revenue U.S $29.05 Billion U.S $110.22 Billion No. of Consumers Not known 50 Million
As per Report on Trend and Progress of Banking in India 2011-12, published by RBI the total liabilities / assets of Indian banking sector was Assets Rs.71,834 billion & 82,994billion in 2011, 2012 respectively. If we convert into US $ it cannot match global banks.
Going by the comparative figures that are available of US even as of 2005, if we add up today figure of Nationalized Banks India with US even merger of 19 nationalized banks is not going to create a new entity of international status. Even SBI is not even one-tenth the size of the tenth largest bank in the world. But this also means that no amount of consolidation will give Indian banks a global size in the foreseeable future.
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To the utmost surprise its clear from above, the market capitalization of China’s ICBC which is approximately $158 billions is far more than the collective market capitalization of 37 listed Indian banks the market cap of which stood at $69.50 billions as on Nov 10, 2006. This amount is eight times than more than India’s most valuable bank, ICICI Bank. Though ICICI Bank may be giant among vis-a-vis all Indian banks collectively in terms of market capitalization yet it has miles to go to touch a foreign biggy. The reason of undervaluation of Indian banks lies in the fact that interest rake risk is comparatively higher and interference in the functioning of banks by the government.
Indian banks are not able to compete globally in terms of fund mobilisation, credit disbursal, investment and rendering of financial services.. In 2008, there was only one Indian lender - SBI, at eighth place among the top 25 Asian banks. Industrial and Commercial Bank of China, the biggest Asian bank and the world‟s eighth biggest bank, is four times bigger than SBI, both in terms of tier-I capital as well as assets. Another recent study „Report on Currency and Finance‟ released by the RBI reveals that the combined assets of the five largest Indian banks - SBI, ICICI Bank, Punjab National Bank, Canara Bank and Bank of Baroda are just about half the asset size of the largest Chinese bank, Bank of China. The bank is 3.6 times larger than SBI in terms of assets, branches and profits.
SBI is ranked at 380 in 2008 Fortune Global 500 list, and ranked 219 in 2008 Forbes Global 2000. In May 2006, Earnst and young bank estimated that China’s bad bank loans were about $911 billions which included $358 billion for the 4 largest banks alone. ICBC had total asset worth $812 billion which is closed to India’s GDP. The largest bank of India SBI which covers almost 1/5th of the total banking assets over the past 3 to 4 years had only $84 billion. On the basis of Tier I capital SBI has a size of 1/10th to Citigroup ($79 billion).Hence in this regard SBI is at no. 72nd in world. It’s not even among the first 10 big banks in Asia which is occupied by Chinese Bank with each of them having a capital base of over $30 billions. Indian banks features among the top 25 Asian Banks in contrast to China which has 6 representations
Its assets (along with those of its five associate banks) are worth $355 billion but that’s nowhere close to the top lenders. SBI was ranked 60th in the list of world’s top 1,000 banks by The Banker magazine in July. Bank of America, which topped the list, had assets of $2.16 trillion. It might take SBI several years to reach that size organically, and by the time it does so Bank of America will have grown even bigger.
The argument Bigger size is needed for scale economies as being advanced by the Finance Ministry fall on four legs as scale economies are useful but beyond a certain size, the benefits of scale taper off and tend to be offset by growing complexity. Internationally, studies have shown that a size of around $ 20 billion is optimal. India’s top ten banks meet this size requirement.
One outcome of the present global crisis is that large banking monsters have come to be feared. The world's largest banking group viewed under many parameters including profitability is the Citigroup. An outstanding example of a financial services group that grew through M&As, the bank has been asked by the Federal Reserve Board to desist from further acquisitions until it refined its systems and procedures. If a bank such as the CITI, which has been a global force, could be faulted on its basics, there is clearly a message for Indian PSBs to be far more circumspect than what the Government would recommend. Some of the world’s biggest banks, the Citigroup notably, which relied heavily on mergers and acquisitions to grow phenomenally, have been rapped on the knuckles by the regulators and are realising that such stupendous inorganic growth has come at a price. But In India, there is a revival of the clamour for bank consolidation disregarding these adverse trends
Today, even with consolidation as proposed if a loan size is, say, Rs 10,000 crore, there will not be single consolidated bank which can take the portfolio on its book. It has to be once again put together a consortium to avoid risks in their balance sheet should it become NPA like the recent Kingfisher Airlines Or Deccan Chronicle
The biggest problem of much talked about mergers of banks is the implication of consolidation on employment, profitability, market share, human motivation and technology. Since the merger exercise is in its infancy stage in India, the past experience of post merger implications on economy can be taken into considerations to devise and monitor of merger. Employees or most affected party of mergers. The UNI Europe Report estimated that 1, 30,000 jobs have been lost in the last 10 years as a result of mergers and acquisitions. The following table response of employees on VRS (refer table):
BANK EMPLOYEE’S RESPONSE TO VRS OFFER IN 2001Name of the Bank Total Strength VRS Optees Percentage
SBI 237,000 35,000 13.89Allahabad Bank 22,355 1,571 7.03Andhra Bank 14,603 1,758 12.04Bank of Baroda 47,054 3,200 6.80Bank of Maharashtra 16,098 2,700 16.77Bank of India 51,962 7,700 14.82Canara Bank 55,363 8,600 15.53Dena Bank 14,412 3,710 25.74Indian Bank 25,935 3,988 15.38Indian Overseas Bank 28,008 3,944 14.08Oriental Bank of Commerce
14,398 800 5.56
PNB 65,705 5,800 8.83Punjab and Sindh Bank 12,192 2,000 16.40Syndicate Bank 33,223 5,459 17.55UCO Bank 31,223 5,479 17.55Union Bank of India 30,834 4,303 13.96United Bank of India 21,316 3,000 14.07Vijay Bank 13,646 2,400 17.59
According to this report in India about 11% of over eight lakh strong bank employees opted for first ever voluntary retirement scheme.
The other problems of mergers may be as follows:
Highly innovative product portfolio may create among the customers and only a few smart customers can take the benefits of product offered by merged banking entities.
The branch closers can create job losses and back room operations may reduce face to face interaction of the service providers with the customers.
The work load of employees will be highly specific and some time even complicated due to financial conversions. Therefore a burdened employee may not be able to respond to customer effectively.
Highly techno savvy nature of banking operations may create problems to simple and non techno public.
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The focus of banks would be highly professionalized and the efforts of big banks will be directed towards making more and more profits and less concentration on consumer’s grievances.
Central Government has been building pressure on banks to make best efforts for merger and acquisition. But I am unable to understand the motive behind it in Indian perspective. Finance Minister has said that through consolidation, financial powers of banks will improve and they will not only be able to augment efficiency and help in GDP growth but also get success in competing with International big banks. Here the million dollar question arises whether Late Indira Gandhi had nationalized banks to compete with International banks, whether banks are meant to extend credit in thousands of crores to a few hundred merchants or manufacturers only?
Has government forgotten the social objective of banks completely?
Is it possible for a government to survive by discarding the interest of common men, farmers, small traders in India? Is it necessary for India to have bigger banks to extend credit to farmers and small traders who together constitutes 95% of population and without whose support even economic viability of large projects would be at stake?
It is important to mention here that there is sharp rise in loan portfolio or visible growth in advances of banks in general is not due to financing made by banks to small traders and farmers but only due to bulk financing made to big corporate houses, to real estate developers and toInfra structure developers.
Does any one in the government or in RBI mean that by merger and enhancing powers of banks, there will be equitable GDP growth in country like India?
Even in America where big banks are many, one out of every seven Americans starves and struggle for earning their bread and butter for at least survival. In India the position is worse than that in USA. In India nine out of every ten Indians are unable to earn sufficient money even for respectful living. Considerable large proportion of Indian population is suffering from mal-nutrition; they die of curable diseases in want of proper medical assistance and they remain unemployed in want of adequate opportunities. This is India where even federal structure of the country is at stake due to largely growing
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unemployment. Besides in majority of villages, small towns and cities there is no proper sanitation facilities, acute scarcity of water and electricity, crisis for medical treatment and what not. This is why we reiterate that Indian environment is different from other developed nations and hence need unique treatment,
It is worthwhile to add here that USA government have realized after fall of big banks and financial Institution during last year that management of big banks is very difficult compared to smaller ones. Still there are about 8000 smaller banks functioning in USA to serve common men. It is also true that 125 banks became bankrupt or closed their shutters during the current year in USA.
If we talk of India we have less than 30 public sector banks and they are said to be in better health position. They are well scattered in every nook and corner of the country to serve Indians in general. They have to be encouraged to extend maximum help to small borrowers. They cannot extend any better help to poor person after merger of banks. Then what is the need of merger and acquisition? Why is government bent upon merger Need of the hour is to make them able to cater to the needs of common men.
Need of the hour is to strengthen the existing structure of banks, make them more and more efficient and enthusiastic. Government should make efforts for repayment of loan and for this purpose make water tight laws to ensure cent percent recovery of loan from willful defaulters so that proportion of dead money in bank’s balance sheet comes down and they can afford and generate will to make finance to common men. Present scenario is that branch manager of every bank’s branch is afraid of extending credit to small borrowers in fear of account going bad and lastly added to Non Performing Asset. Need of the hour is to avoid political intervention in banking affairs and to resort to healthy norms for financing without any fear of target achievement. To add fuel to fire all banks are suffering from staff shortage and as a consequence there is no monitoring on existing borrowal accounts and gradually service quality in banks at many branches is deteriorating in want of adequate staff.
Last but not the least; bitter truth is that big business houses are getting all sorts of help from the government, from the banks and from all corners but all at the cost of poor and middle family. Rich business houses are producing, hoarding and realizing maximum profit on their products and it will not exaggeration to say that the present trend of rising price is caused
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by these profit makers only. Government has been making promises and promises to control price, but always fail on this front because they have given undue freedom and undue privileges to these business houses. I hope government will make all best efforts to give relief to general mass who are subjected to unbearable pain on account of sharp price rise in all commodities without proportionate rise in their monthly income.
India is said to be suffering from extremism in some districts due to increasing poverty and due to the fact that they are denied their legitimate right and they are even deprived of justice in proper time. Can merger and acquisition by banks help in ameliorating their problems of poverty ridden Indians? we would like to draw the attention of learned FM and PM that late Indira Gandhi (Congress Party) had nationalized banks because private banks were hesitant to extend credit to common men, villagers were deprived of banking facilities and common men was afraid of even entering in to bank. Private Banks were exploiting not only staff working in the banks but were also exploiting business houses. It will not be exaggeration to predict and say that the same Congress Party under the banner of UPA is dragging banking industry in pre-nationalization era.
It has to be borne in mind that during reformation era 23 banks were forcefully merged to bigger banks by government of India because they succumbed to malady and irregularity they accumulated, and not because they were small banks. Giant banks, Lehman Brothers, AIG failed not because they were big but they followed wrong policies and committed misadventure in delivery of credit and in making investments.
Finally one doubts the honesty and integrity of government in their efforts for merger, acquisition and consolidation of banks because they know the quantum of malady and bad assets hidden behind the rosy balance sheets of PSBs., the merger policy discussions are esoteric, technical and limited to a small number of influential public and private sector institutions leaving policy discussions vulnerable to be structured to favour the interests of large, financial firms over other interests . Otherwise there is no reason for providing capital infusion to various weak banks from time to time. It is their political agenda to save the banks from exposure of their reality when the misdeeds increases to such a large extent that it punctures the tyre of running banks. They are trying to divert the attention of public from inherent weaknesses of PSBs and this is why they are not agreeable to respectable wage revision of bank employees. Exodus of talented employees and non entry of well qualified person in PSB banks is also a vital reason behind growing weakness of Banks.
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In this regard we bring the most important, question posed in the discussion paper put out by the Reserve Bank of India in August 2010 examines the pros and cons of the 'Entry of New Banks in the Private Sector'. is "whether large industrial and business houses could be allowed to promote banks". The Indian licensing guidelines of 2001 do not allow "large" industrial houses to sponsor new banks.
The reasons go back to the dubious practices of such banks directing credit to preferred borrowers prior to bank nationalization in 1969. All the disadvantages of allowing industrial houses to sponsor banks are as valid today as before.
Among major economies, Canada the United Kingdom, Germany] and France do not bar industrial companies from promoting banks.
In contrast, the United States does not allow industrial houses to own banks. It is evident from the dispersed nature of past banking sector breakdowns that permitting industrial houses to own banks or disallowing them was not a good indicator of whether banks would need government back-stop funding assistance. The fourth, and most important, question posed in the paper is "whether large industrial and business houses could be allowed to promote banks". The Indian licensing guidelines of 2001 do not allow "large" industrial houses to sponsor new banks.
As the RBI paper has suggested, the probability of industrial houses interfering in banks promoted by them could be reduced by restricting banking licences to companies with diversified ownership. The downside risk is that it may be practically impossible for RBI to prevent crony lending practices. Consequently, it is for RBI to assess whether, at our current stage of development, it can consistently monitor bank lending and stand up to pressures from corporate oligopolies. Consequently, we need to assess if periodic banking sector crises are inevitably linked to business cycles or whether they are more influenced by unconstrained and under-regulated growth of the banking sector as compared to the rest of the economy.
For example, the banking sectors in the US, the UK, Iceland, Ireland, Cyprus and regional savings banks in Spain are significantly oversized and/or over-leveraged. It is high time to reflect on the received wisdom that more is good in banking since this promotes growth. RBI should take its time to reassess outstanding levels of household, corporate and public internal and external debt, sectoral growth of credit and preferred size of the
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banking sector versus that of the economy before issuing licences for the entry of new private banks.
World’s largest banks in terms of market capitalization
The list below shows the largest banks in the world based on market capitalization as of January 20, 2012. Industrial & Commercial Bank of China (ICBC) is the largest bank in the world by market capitalization value. Chinese banks occupy the top positions. The People’s Republic now has 4 of the top 7 banks, including the top 2.
Rank
Bank CountryMarket cap
($b, 20/1/2012)
1Industrial & Commercial Bank of China (ICBC)
China 240.95
2 China Construction Bank China 195.85
3 Wells Fargo & Co US 160.72
4 HSBC Holdings UK 150.90
5 Agricultural Bank of China China 141.73
6 JP Morgan Chase US 140.95
7 Bank of China China 128.80
8 Itau Unibanco Brazil 88.17
9 Citigroup US 86.67
10 Commonwealth Australia 82.62
11 Royal Bank Canada Canada 76.56
12 Bank of America US 71.77
13 Toronto-Dominion Bank Canada 70.53
14 Banco Santander Spain 67.32
15 Westpac Australia 65.77
16 Mitsubishi UFJ Financial Japan 64.25
17 Banco Bradesco Brazil 63.91
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Rank
Bank CountryMarket cap
($b, 20/1/2012)
18 Sberbank of Russia Russia 59.36
19 ANZ Banking Australia 58.48
20 Bank of Nova Scotia Canada 58.16
21 Standard Chartered UK 57.68
22 National Australia Bank Australia 56.04
23 US Bancorp US 54.85
24 BNP Paribas France 54.21
25 Goldman Sachs Group US 53.53
26 UBS Switzerland 52.00
27 Bank of Communications China 48.11
28 China Merchants Bank China 45.15
29 Sumitomo Mitsui Financial Japan 43.62
30 BBVA Spain 42.98
31 Banco do Brasil Brazil 42.19
32 Barclays UK 42.07
33 Deutsche Bank Germany 39.17
34 Bank of Montreal Canada 37.93
35 Mizuho Financial Group Japan 35.82
36 Morgan Stanley US 35.49
37 Banco Santander (Brasil) Brazil 34.97
38 Lloyds Banking Group UK 34.76
39 Nordea Bank Sweden 33.57
40 China Citic Bank China 31.40
41 PNC Financial Services US 31.37
42 Credit Suisse Group Switzerland 31.29
43 Canadian Imperial Bank of Commerce (CIBC) Canada 30.76
44 Intesa Sanpaolo Italy 29.00
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Rank
Bank CountryMarket cap
($b, 20/1/2012)
45 BOC Hong Kong Hong Kong 28.13
46 Shanghai Pudong Development Bank China 27.76
47 Bank of New York Mellon US 25.80
48 Royal Bank of Scotland UK 25.17
49 Hang Seng Bank Hong Kong 24.49
50 State Bank of India India 24.48
WORLD’S 50 SAFEST BANKS
1. KfW(Germany)
26. Pohjola Bank(Finland)
2. Bank Nederlandse Gemeenten (BNG)(Netherlands)
27. BNP Paribas(France)
3. Zürcher Kantonalbank(Switzerland)
28. China Development Bank(China)
4. Landwirtschaftliche Rentenbank(Germany)
29. DZ Bank **(Germany)
5. Caisse des Dépôts et Consignations(CDC)(France)
Tie* 46. Banco del Estado de Chile (BancoEstado) **(Chile)
21. Australia and New Zealand Banking Group (ANZ)(Australia)
47. Barclays Group(United Kingdom)
22. Svenska Handelsbanken(Sweden)
48. Crédit Agricole(France)
23. Bank of Montreal (BMO)(Canada)
49. Bank of Tokyo-Mitsubishi UFJ(Japan)
24. Canadian Imperial Bank of Commerce (CIBC)(Canada)
50. Banco Santander(Spain)
25. BNY Mellon(United States)
*A tie is assigned when two banks with the same score have total assets within a $5 billion range.
**NEW ENTRANTS
PR date: Global Finance magazine March 1, 2012 Ratings as of: February 22, 2012
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A listing of those banks who have increased their score since October
Most Improved Ratings: April 2012
NameScore April
Score October
Score Change
Country
Agricultural Development Bank of China
20 18.5 +1.5China
Corpbanca 9.5 8 +1.5 ChileOverseas-Chinese Banking Corp 23 22 +1 SingaporeUnited Overseas Bank 23 22 +1 SingaporeDZ Bank 20 19 +1 GermanyBanco de Crédito e Inversiones 15 14 +1 ChileBendigo and Adelaide Bank 13 12 +1 AustraliaBanco do Brasil 6 5 +1 Brazil
Notes: The sovereign debt crisis is still raging in Europe, the Arab Spring outcome is far from clear and global elections have put political stability at risk in some markets. As a result, the credit ratings of European and global banks have been affected, and have moved down the ranking of the World’s Safest Banks. In contrast, a number of banks—particularly in Asia and the Middle East—have benefitted by moving up the ranking.
In addition, even in the face of tough market conditions some banks have actually improved their score by having their ratings upgraded since the last ranking was released. With these factors in mind, Global Finance has launched the World’s 50 Safest Banks: April 2012; and launched a list of the Most Improved Ratings—those banks who have increased their score since October.
According to Global Finance survey of the World’s 50 Safest Bank in 2012, American banks are really not safe at all, at least compared to other countries. Not a single U.S. bank figured in the top 20. Almost forty percent of these banks were European; including Credit Agricole in France and Banco Santander in Spain.
Global Finance has been compiling a list of the World’s 50 Safest Banks for the past 21 years. Rankings are determined by long-term credit ratings and analysis of total assets owned by the 500 largest banks in the world.
“Brands are the most valuable intangible assets in business today. They drive demand, motivate staff, secure business partners and reassure financial markets. Leading edge organisations recognise the need to understand brand equity and brand value when making strategic decisions”
If we now consider the topmost 500 brands we find India was the only BRIC nation without a banking brand placing in the top 20.
2012 2011 Name 2012 2011 2012 20111 3 HSBC 27,597 27,632 AAA AAA2 2 Wells Fargo 23,229 28,944 AA+ AA+3 1 Bank of America 22,910 30,619 AA+ AAA-4 4 Santander 19,969 26,150 AAA- AAA5 5 Chase 18,964 19,150 AA+ AA-6 9 Citi 18,639 17,133 AA+ AA7 13 American Express 18,231 15,529 AAA- AA8 12 BNP Paribas 16,809 16,643 AA+ AAA-9 6 Bradesco 15,692 18,678 AAA- AAA10 10 China Construction Bank 15,464 17,092 AA AA11 8 ICBC 15,164 17,194 AA+ AA12 7 Barclays 13,552 17,358 AA+ AA13 11 Itaú 13,171 16,655 AA AA14 14 Deutsche Bank 12,906 15,169 AA+ AA+15 17 Bank of China 12,857 13,257 AA- AA+16 18 JP Morgan 11,602 13,241 AA+ AA-17 19 Sberbank 10,772 12,012 AA+ AA+18 23 Agricultural Bank of China 9,929 9,283 A+ A+19 16 Goldman Sachs 9,332 13,406 AA+ AAA-20 28 RBC 8,647 7,069 AA+ AA+21 31 TD 8,499 6,604 AA- AA-22 15 Credit Suisse 8,368 13,497 AA+ AAA-23 27 MUFG 8,315 7,336 AA- A+
2012 2011 Name 2012 2011 2012 201124 26 Standard Chartered 7,624 7,419 AAA- AAA-25 25 Rabobank 7,328 7,423 AA+ AA-26 22 Banco do Brasil 7,264 9,526 AA AA+27 20 BBVA 7,195 10,720 AA- AA28 32 VISA 7,087 6,555 AAA- AAA-29 29 Morgan Stanley 6,347 6,857 AA AA-30 21 UBS 5,944 9,915 AA AA31 44 Scotiabank 5,717 4,120 AA AA-32 36 Bank of Communications 5,630 5,476 AA- AA-33 47 Bank of Montreal 5,360 3,797 AA- A+34 33 Nordea 5,253 5,741 AA AA+35 45 MasterCard 5,177 3,931 AA+ AA+36 50 Capital One 4,947 3,584 AA AA-37 38 PNC 4,845 4,993 AA AA38 24 Société Générale 4,734 8,153 A+ AA-39 34 State Bank of India 4,687 5,670 AA+ AAA-40 55 CIBC 4,557 3,276 AA- A+41 37 U.S. Bank 4,514 5,416 AA- AA
42 46Commonwealth Bank of Australia
4,244 3,858 AA+ AAA-
43 42 National Australia Bank 4,160 4,176 AA AA-44 30 UniCredit 4,140 6,621 A+ AA-45 53 Royal Bank of Scotland 4,056 3,346 A+ A
46 43The Bank of New York Mellon
4,029 4,156 AA- AA-
47 56 China Merchants Bank 3,980 3,189 AA- A+48 35 SMFG 3,848 5,512 AA- A+49 52 Westpac 3,570 3,384 AA AA50 59 ANZ 3,433 2,977 AA+ AA+51 39 Mizuho 3,377 4,349 AA- A+52 40 DZ BANK 3,330 4,303 A AA-53 61 ING (Banking) 2,845 2,906 AA- AA-54 48 Crédit Agricole 2,841 3,706 AA- AA-
92 84 SEB 1,663 2,069 AA- AA-93 130 National Bank of Canada 1,660 1,247 A+ A+94 124 United Overseas Bank 1,637 1,277 AA- AA-95 97 Fifth Third Bank 1,608 1,752 AA AA-96 95 Akbank 1,582 1,780 AAA- AAA-97 101 Industrial Bank 1,571 1,705 A A+98 76 Isbank 1,569 2,280 AA AA99 118 Maybank 1,566 1,403 AA- A+100 - China Everbright Bank 1,561 - A -101 99 St George Bank 1,536 1,722 AA AA102 70 ICICI Bank 1,495 2,501 AA AA103 142 Swedbank 1,467 1,082 A+ A104 96 Garanti 1,434 1,754 AAA- AAA-105 85 Natixis 1,429 2,062 A+ AA-106 102 Intesa Sanpaolo 1,425 1,691 AA AA107 115 Blackstone 1,405 1,467 AA AA108 146 OCBC Bank 1,366 1,032 AA AA109 - Hana Financial Group 1,362 - A+ -110 103 DekaBank 1,317 1,679 AA- AA-111 113 ONEX 1,301 1,490 A AA-112 114 PKO Bank Polski 1,293 1,480 AA AA113 164 Discover 1,291 886 A+ A114 191 QNB 1,264 703 AA+ AA+115 135 Public Bank 1,233 1,217 AAA- AAA-116 110 Al Rajhi Bank 1,244 1,504 AA+ AA+117 139 Invesco 1,221 1,121 AA- AA-118 138 National Bank of Abu 1,206 1,142 AA+ AA
2012 2011 Name 2012 2011 2012 2011245 277 Finansbank 372 394 A+ A+246 342 Investors Group 362 293 A+ A+247 286 China Merchants Securities 362 379 A A+
248 198Banco Comercial Português
357 502 A+ A+
249 323 HDFC 355 315 AA- A+250 167 National Bank of Greece 354 863 AA- AA-251 259 Bank of the West 349 448 A+ A+252 320 Banrisul 347 319 A+ A253 242 Bank of India 343 502 A AA-254 484 Amundi 340 175 A A255 272 BRE Bank 339 405 A A
256 335Halyk Savings Bank Kazakhstan
339 295 AA- AA
257 291 Vontobel 335 367 A+ AA258 261 TCF 333 440 AA AA259 190 Banca Popolare di Milano 332 716 A+ A+260 224 Canara Bank 328 550 A A+261 - Chongqing Rural 326 - A -262 285 Jefferies 323 381 AA- AA-263 303 Dubai Islamic Bank 322 350 AA- AA-264 356 Bank Of Ningbo 321 270 A+ A+265 493 African Bank 319 171 AA- AA-266 317 Close Brothers 318 322 AA- AA-267 279 First Horizon 316 389 A+ A+268 327 First Citizens Bank 315 307 AA- AA-269 266 Knight 314 425 A A+270 392 Attijariwafa Bank 311 237 A+ A271 288 BNZ 307 377 AA- A+272 346 Eaton Vance 306 285 A+ A+273 308 Sarasin 303 340 A A274 339 BCP 294 294 AA- AA-275 325 IDBI Bank Limited 293 309 AA- AA-
2012 2011 Name 2012 2011 2012 2011307 414 Inbursa 242 219 A+ A+308 292 Ahli United Bank 242 366 AA AA309 375 RAKBANK 241 245 A+ AA310 338 Van Lanschot 241 295 A+ A+311 290 Qatar Islamic Bank 240 368 A+ AA-312 383 Credito Valtellinese 239 241 A A+313 - Capitec Bank 239 - A -314 405 Doha Bank 239 224 A+ A+315 341 Banco Popular 238 294 AA- A+316 382 Banco De Oro Unibank 238 241 AA AA
317 399Challenger Financial Services Group
237 234 A A-
318 395 Metrobank 236 235 AA- AA-319 362 Bank BPH 235 260 A A320 - Gulf Bank 234 - A -321 299 iberCaja 233 357 A A+322 265 ESFG 233 428 A- A-323 312 Commerce Bank 227 334 A+ AA-324 340 The Bank Of Fukuoka 226 294 A A325 239 Sparkasse KölnBonn 226 511 A- AA-326 348 Federated 225 280 A A
327 413Nanjing City Commercial Bank
225 219 A+ AA-
328 334 BBK 224 296 A- AA-329 196 Clariden Leu 224 681 AA- A330 391 Central Bank if India 221 237 A+ AA-331 407 First Niagra 221 223 A+ A332 - Mackenzie Investments 221 - A -333 460 Bank of Kyoto 220 187 A+ A+
334 324Banco do Nordeste do Brasil
220 310 A A
335 433 BGC Partners 220 206 A A336 423 Gunma Bank 218 212 A+ A
2012 2011 Name 2012 2011 2012 2011369 211 Bank of Cyprus 195 616 AA AAA-370 419 Nishi-Nippon City Bank 195 215 A+ A+371 478 Yorkshire Bank 194 178 AA- A372 - Partners Group 192 - A+ -373 412 Joyo Bank 191 219 A A374 400 Bank Millennium 190 234 A A375 351 Banco Pastor 188 274 A A376 - Grupo Security 188 - A- -377 212 Daegu Bank 187 614 A AA-378 - Jaccs 187 - A -379 420 Fortress 186 215 A- A380 462 SVB Financial Group 186 186 AA AA381 374 Banca Carige 185 246 A A382 - Ecobank 184 - A -383 376 Power Finance Corporation 184 244 A A+384 377 Union Bank of India 183 244 A A385 319 FIBA 183 319 A- A386 - Hancock Bank 183 - A+ -387 - Canadian Western Bank 182 - A+ -388 385 Banca Fideuram 182 240 A+ A+389 451 Andhra Bank 182 190 A+ A+390 485 Woori Financial Group 1,336 174 A+ A+391 - NAB 4,160 4,176 AA AA-
392 425Fidelity | National Financial
179 211 A- A-
393 - RMB 179 - A+ -394 434 Wing Hang Bank 179 206 AA- AA395 367 Sapporo Hokuyo Holdings 177 258 A A396 457 The Shiga Bank 177 189 A A+
397 470St Galler Kantonalbank Reg.
176 183 A+ AA-
398 436 Burgan Bank 175 203 AA AA399 390 GFI 175 238 A+ A+
2012 2011 Name 2012 2011 2012 2011400 388 Ural-Siberian Bank 174 238 A- A-401 415 Zagrebacka banka 174 218 A A402 439 VÚB Banka 174 201 A A+403 379 Webster Bank 173 244 A+ AA-
404 440Chang Hwa Commercial Bank
173 201 AA- AA-
405 - AGF Management 172 - A -406 - GAM 172 - A -407 389 Daewoo Securities 172 238 A A408 344 Indian Overseas Bank 172 290 A A+409 - Bank of Queensland 171 - AA- -410 - Orient Corp 170 - A- -411 361 First Bank of Nigeria 170 261 A+ A+412 271 Guaranty Trust Bank 169 407 AA AA
413 426Commercial International Bank
169 210 AA- AA+
414 421 Seven Bank 168 215 A A415 471 BancorpSouth 168 182 A+ AA-416 368 Frost Bank 168 255 AA- AA417 347 Associated Bank 168 284 A+ A+418 - Sinar Mas Multiartha 167 - A- -419 359 East West Bank 167 262 AA- AA420 431 Umpqua Bank 166 209 AA AA+421 472 The Hachijuni Bank 165 180 A+ A+422 305 Banca Popolare di Vicenza 164 347 A- A-423 408 A+ Financial Services 164 222 A A424 232 Alpha Bank 163 527 AA- AA-425 428 Union National Bank 162 209 A+ AA-426 464 Aareal Bank 162 186 A+ AA-427 - Banesco Banco Universal 161 - A -428 491 SpareBank 1 SR-Bank 161 172 A A+
2012 2011 Name 2012 2011 2012 2011491 - Banco de Occidente 125 - A -492 365 BPI 125 193 A+ AA-493 - Panin Bank 123 - A -494 442 Kredyt Bank 123 200 A- A495 - Tong Yang Securities 123 - A -496 430 The Chugoku Bank 121 209 A A+497 - F.N.B. Corporation 121 - A -498 - United Bank for Africa 121 - A -499 - Aozora Bank 121 - A+ -500 - Masraf Al Rayan 121 - A -
Brand ratings
These are calculated using Brand Finance's ßrandßeta® analysis which benchmarks the strength, risk and potential of a brand, relative to its competitors, on a scale ranging from AAA to D. It is conceptually similar to a credit rating. The data used to calculate the ratings comes from various sources including Bloomberg annual reports and Brand Finance research.
Brand ratings definitions:
AAA -- Extremely strong
AA -- Very strong
A -- Strong
BBB-B -- Average
CCC-C -- Weak
DDD-D -- Failing
Valuation date: All brand values in the report are for the year ending December
NOTE: It is interesting to note that Banks from the BRIC countries made up 7 of the years 20 most valuable banking brands, representing more of the top performing brands than Europe. Despite losing 16% of its brand value this year, the most valuable BRIC banking brand was Bradesco of Brazil; which was also he highest rated BRIC based bank as AAA- Beyond the exchange in its come-base of Sao paolo, the bank is listed on the New York and Madrid stock exchanged, which seeks to its global ambitions. Only 5 Brazilian banks were ranked in the 500 most valuable brands, but two of these ranked every highly, with Bradesco by riwal Itan in this year’s top 20.
Loosely following Bradesco in brand value is China construction Bank. As four of China’s “Big four” late-owned banks ranked among the top 20 global banking brands. Agricultural Bank of China posted a 7% increase in brand value, while China construction, Bank of China and ICBC all saw their brand value decline. The Chinese banks all have any low brand values compared to their huge size, which indicates that they have not been able to coverage their brand strength as successfully as European rivals. Overall 24 Chinese bank brands placed on the table.
India was the only BRIC nation without a banking brand placing in the top 20, with the highest rated Indian Bank brand – State Bank of India – Placing 9 th
and second placed ICIC sitting at 102nd. Overall, 22 Indian banking brands made the table. Most of them in the 300s and above. Like the Chinese banks, Indian banking brands represented small fraction of their market capitalization. The Indian Overseas bank, which had the highese brand blue/market capitalization ratio among the Indian banks had a brand worth only 15% of its market capitalization. The compares to 22% for HSBC of % for Barclays.
The most valuable Russian banking brand is state controlled soonbank, which was this years 17th most valuable banking brand in the world.
It is pellucid from the above table depicting Top 500 Most Valuable Banking Brands that Indian Banks though may not be bankers to the world but they certainly have improved their position due to strict regulatory regime by Reserve Bank of India in the worst recession for the global banking industry. There are 20 Indian banks in the Brand Finance Global Banking 500, an annual international ranking by UK-based Brand Finance Plc, this year. In terms of assets, SBI was the world‟s 70th largest bank in 2009, but due to global financial crises, several big daddies collapsed paving way for the sound and resilient Indian banks in the Top 500 list. SBI‟s brand value more than tripled to $4,551 million, up from $1,448 million in 2009 helping it grab the 36th spot in the list. On the other hand, ICICI Bank Ltd, the largest private sector lender was at the 110th position in 2009, joined in the top 100 list with 130 % jump in brand value. HSBC retained
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its top slot for the third year in a row. The number of Indian banks in the global list had more than tripled last year to 19 from six in 2007 but still, as was the case last year, the Asian top 10 banks are dominated by Chinese banks with the gap between the major Chinese banks and the rest widening (The Economic Times, February 1, 2010).
Consolidation of public sector banks grasses for the elephants
Some time in January2005 the Finance Minister called the Chairmen of the public sector banks and told them that they must immediately act to merge their banks and reduce the number of public sector banks to just four. Also they were told to write off their NPAs (Non-performing Assets; or money loaned to big business and not paid back) fast. The entire purpose was to make the banks viable for foreign take-over. Along with the rethink on the question of FDI in banking, the government has been emphasizing the need for consolidation of Indian banks. On September 9, 2004 speaking after a meeting with chief executives of public sector banks (PSBs), Union Finance Minister P. Chidambaram spoke of the government’s plans to review the legislation that would enable consolidation among PSBs. Specifically, he promised that the Union Budget of 2005 would provide tax incentives for profitable PSBs that merge. PSBs must grow "in scale and muscle" to compete effectively with "world class banks". Clearly, not all were in agreement.
The Reserve Bank had expressed no immediate need for consolidation of PSBs, and though the Committee on the Financial System (RBI) in its sweeping denunciation of the past performance and past strategy of Indian banking in 1991 had recommended a policy of bank consolidation as a performance enhancing measure, the Reserve Bank in the subsequent years maintained its pre-liberalization strategy of directing mergers on a case by case basis. Mergers and acquisitions in the banking sector in India occurred because of the need to restructure weak banks which were entirely supported and directed by the GOI and the RBI. Thus the present announcement is another example where the Central Bank’s cautious stance has been overruled by the ambitious Finance Ministry. The need to compete effectively with world class banks asserted in the Finance Minister’s speech cannot possibly refer to operations in overseas markets, since the Indian banks are still too small both in terms of size and range of operations and products necessary to compete internationally. What perhaps the profitable Indian banks could at most hope for in the near future is to service the Indian diaspora and the international operations of Indian corporates. The talk of taking on the global majors is therefore arguably on Indian soil where the government is
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adopting a paradoxical policy of, on the one hand, pushing for consolidation of PSBs for fear of competition from world-class banks, while simultaneously soliciting more FDI into banking. The government’s fear that international banks could out-compete domestic banks and ultimately take control of economy-wide banking assets is real. But precisely for these reasons there is need to restrict and discourage banking FDI. The travails of the Japanese banks rapidly losing market share to US and European banks, despite massive consolidation of the domestic financial institutions is too stark to be ignored. Within a decade the market value of Japanese financial firms, many of which used to operate globally, have halved while the US and European financial firms have observed a near ten-fold increase in market value. The centralization of wealth consequent to the globalization of finance emerges most sharply from this evidence. If Japan could reach such a state of crisis, how can the Indian banking sector whose largest bank State Bank of India is not even one-tenth in size of the ninth largest bank in the world hold its ground against the transnational titans?
A large number of studies have examined the impact of M&A driven consolidation on bank costs in different contexts.
Contrary to popular notion that sees efficiency improving with size, academic studies find no evidence of mergers improving cost efficiency on average.
Efficiency effects are also weak in European bank mergers. Thus mergers automatically need not lead to lower costs, greater efficiency or create stronger banks.
On the other hand, it might lead to loss of employment for many and massive adjustments for other staff members who might be relocated to another branch, a different geographic location and into a new line of banking.
On papers M & A sound attractive but in real world synergies don’t materialize. Since each corporation has distinct work culture it is not easy task for the board, management and workers to work cohesively in the aftermath of mergers. Often dis-synergies (such as loss of customers and difficulties in reconciling different service terms) only can be anticipated after mergers.
The Japanese case is the most telling example of size failing to solve banking problems. Motivated largely by distress, Japan’s large banks have been engaged in a series of defensive mergers, accompanied by government assistance in unloading bad debt. These “bigger is better” mergers did not resolve the problems: gains in microeconomic efficiency were minimal, and
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these banks’ inability to lend compromised any possible economic recovery. A decade into the post-bubble adjustments, virtually all large Japanese banks have been merged or suggested for merger.
In a study, ASSOCHAM assumed that if all 27 public sector banks are merged, their capital base would be just $3 billion, which stands nowhere against the capital base of $20 billion of a single entity in China – Industrial Commercial Bank of China.
Going by the comparative figures that are available of US even as of 2005, if we add up today figure of Nationalized Banks India with US even merger of 19 nationalized banks is not going to create a new entity of international status.
The tier I capital of JP Morgan Chase, HSBC, Deutche Bank for instance stands at 2,31,670 lacs, 13,300 lacs, 2,73,020lacs. The combined assets in the year 2000 of top 10 banks in the world Rs. 5,96,77,620 lacs which is bigger than GDP of either Korea, 60,53,310lacs, India 59, 89,660lacs or Australia 5,18, 332 lacs.
The revenue of City corps Rs. 9,47,130 lacs, is larger than GDP of Singapore which is 9,13,420lacs.
The profit of city corp is 1,78,530 lacs is larger than Combined GDP OF Nepal, Cambodia, Fiji, Laos, Mongolia viz 1,56,090 lacs.
Comparison with Chinese banks
In terms of size, Bank of China is the 11th largest bank in the world, while SBI occupies the same position in Asia. Globally, however, SBI is 93rd. In terms of asset base, Bank of China is over four and a half times bigger than SBI. Last year, it had an asset base of $516 billion against SBI's $110 billion (at an exchange rate of Rs 45.77 a dollar).
When it comes to Tier I capital (that is, equity and reserves) -- another parameter to ascertain a bank's size and its risk-taking ability -- Bank of China is again bigger than SBI. Last year, its Tier I capital was $34.8 billion against SBI's $5.8 billion.
Bank of China is actually marginally smaller than the entire Indian banking industry. Last year, the collective Tier I capital of 77 Indian banks -- 26 public
52
sector banks (2005-06 balance sheet of Punjab & Sind Bank is not yet available), 24 private banks, and 27 foreign banks operating in India -- was $33.7 billion.
The overall asset base was $533 billion. The top four banks in China, which also hold the top four slots among Asian banks, had a Tier I capital of $95 billion -- almost three times the capital base of the entire Indian banking industry. Similarly, the asset base of the four was $2,095 billion, almost four times that of Indian banks'. The list could go on and on. Hence the claims of the champions of merger moves are utterly unrealistic and hallow and the same deserve to be treated contemptuously as the Top TNC banks can gobble up even if 19 banks and SBI are merged into singly entity. In Annexure I we have given the list of bank mergers in United states, so that one can gauge the gigantic magnitude of assets size after mergers and arrive at right conclusions that arguments for consolidation moves advocated by the FM are preposterous
Riding on this euphoria of up-gradation of banking services, some policy makers are dreaming of evolving ‘giant size’ banks by consolidation; and of making such banks ‘globally competitive’. It is a moot point whether efficiency in banking is size neutral or whether there are indeed economies of scale. There is already evidence in India as well of the futility and even the dangers of consolidation.
Indian evidence
In the last few years, the Indian public sector banks have been able to raise their profitability substantially.
While the real costs of these apparent gains in terms of the real economy’s needs are what this report seeks to underline, it cannot be denied that PSBs when judged by corporate performance parameters have recorded substantial improvement.
In the present circumstances, where the banks are able to book profits normally and an increasing proportion of the banks are tapping the capital markets to strengthen their equity base, most observers find it difficult to comprehend the need for PSB mergers.
There are absolutely no domestic compulsions for consolidation of public sector banks.
Secondly, the Indian evidence of the post-liberalization era doesn’t uphold that bigger size confers greater efficiency—i.e. consistently, higher levels of profitability.
Against the backdrop of a challenging environment,SBI announced that Net Profit of the Bank increased by 41.66% from Rs8,265 crores in FY''11 to Rs
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11,707 crores in FY''12, one of the highest net profits earned by any corporate in the country. Operating Profit for your Bank crossed Rs30,000 crores mark, rising by 24.62% to Rs31,574 crores in FY''12 from Rs25,336 crores in FY''11, indicating that core operations remain robust.
Even the new generation HDFC Bank, very small compared to ICICI Bank has shown up commendable performance over the years.
One of the aspects of mergers that is often underplayed when expecting a cost efficiency improvement is the problem of compatibility of the cultures and systems and people of the merged entity.
As it were, these are going to be real problems, even if the employed workforce can be slashed heavily, a probability not unforeseen for Indian PSBs.
The RBI deputy governor has rightly sounded a cautionary note in this regard: “As we have seen in the past, in any merger integrating the manpower and culture of the taken over bank with manpower and culture of the host bank proves to be a great challenge. It is only when integration in these aspects is achieved successfully that the merged entities will be able to capitalize on the synergies. ……it will be necessary to ensure that mergers are successful in all respects, including manpower and cultural aspects which are unique in the Indian context.”
Therefore the present talks of merger in the banking Industry by Government is to implement the recommendations of Narsimham Committee Report, in a manner it has been suggested, i.e. “merger of the Public Sector banks are expected to emanate from the managements of the banks with the Government. On shareholder playing a supportive role and to achieve the objectives laid down by this committee particularly the “rightsizing” of staff and closure of branches in the name of rationalization”. The above quoted recommendations of Narsimham Committee report (April1998) reveal the real objective of the Govt. regarding merger of Public sector banks.
Such mergers will provide market for private sector banks, promote privatization in banking industry, change mass banking to class banking, reinforce the merged public sector banks –to absorb shock given by corporate loans becoming NPA, help corporate capital , finance capital , foreign capital and multinational capital to promote their business interest and to increase their super profit and ultimately will restrict the flow of credit to much starved agricultural sector , SME sector , employment generation programme and to fulfill the social objectives for which banks were nationalized It will create job redundancy and ultimately workforce will loose tier jobs . Mergers of Public Sector banks will only serve the
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corporate capital and cut down the growing need of credit to priority sector including agriculture and SME sector.
Most of the Public Sector Banks are doing well in almost all parameters i.e. deposits, advances, net profits, return on assets, return on net worth, earning per share, capital adequacy ratio, net interest margin cash income ratio, recovery of non performing assets and /or on NPA management, advance to agriculture, small-scale industry and other priority sectors. Despite that the FM has been provoking and insisting the public sector banks’ chiefs that ‘pubic Sector Banks will be reduced to small entities if they do not consolidate.”
The relationship of profitability of banks (defined as net profits to asset ratio) with their total asset size has been estimated for scheduled commercial banks for the period 1991-2 to 2003-4 by Bagchi and Banerjee (2005). The results indicate that the coefficient of asset size is negative insignificant even at 10 per cent level, which leads to the conclusion that total asset size had no systematic impact on the profitability ratios of the Indian scheduled commercial banks.
Another study by T.T Ram Mohan, Associate Professor and Chairman, Finance & Accounting Area, Indian Institute of Management, Ahmedabad and Subhash C Ray, Professor, Department of Economics, University of Connecticut corroborates the high performance and efficiency of Pubic Sector banks “We have compared efficiency and productivity of PSBs relative to private sector banks, both domestic and foreign. This comparison is attempted over a nine year period (1992-00), out of which eight years belong to what might be called the post-deregulation period, if we use the generally accepted year of 1992-93 as the cut off date for the big push in bank deregulation. Our results are interesting given the general belief that deregulation would expose the inefficiencies inherent in government ownership and result in a huge gap between private banks and PSBs. This has not happened. We are unable to uncover any significant differences in productivity growth and efficiency between the public and private sectors in the period under study. PSBs are clearly superior to private sector banks but there is no difference between them and foreign banks. The results accord with known facts about the financial performance of PSBs. PSBs have higher costs than private sector banks but they do better on a key revenue parameter such as spread. The question we ask in revenue maximization is: how well is a bank doing, given its cost base? Not surprisingly, PSBs are seen to do better than private sector banks.” India's public sector banks (PSBs) are compared unfavourably with their private sector counterparts, domestic and foreign. This comparison rests, for the most part, on financial measures of performance, and such a comparison
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provides much of the rationale for privatisation of PSBs. In this paper, we attempt a comparison between PSBs and their private sector counterparts based on measures of efficiency and productivity that use quantities of outputs and inputs. Efficiency measures a firm’s performance relative to a benchmark at a given point in time; productivity measures a firm’s performance over time. Both measures are relevant in attempting a comparison between the private and public sectors. We employ three measures to measure efficiency. We attempt these comparisons over the period 1992-2000, comparing PSBs with both domestic private and foreign banks. Out of a total of six comparisons we have made, there are no differences in three cases, PSBs do better in two, and foreign banks in one. To put it differently, PSBs are seen to be at a disadvantage in only one out of six comparisons. It is difficult, therefore, to sustain the proposition that efficiency and productivity have been lower in public sector banks relative to their peers in the private sector. It is possible to speculate on why this is so. One explanation could be that there has been a change in orientation in PSBs from social objectives towards an accent on profitability, especially given that some of these have come to be listed on the exchanges and have private investors. Another is that PSBs enjoy a huge advantage in terms of scale of operations over private sector banks and these advantages offset any inefficiencies that could be ascribed to government ownership.”
Even the series of stress tests conducted by the Reserve Bank in respect of credit, liquidity and interest rate risks showed that banks remained reasonably resilient. However, under extreme shocks, some banks could face moderate liquidity problems and their profitability could be affected," India’s central bank concludes in its annual I report titled ‘Trends and Progress of Banking in 2011-12’.
The report states that "the financial system of the country remains robust, even though the risk to stability of the system is rising on the back of global and domestic macroeconomic factors". However, despite the rising impairment of asset quality, "the resilience of the banking sector was manifested in an improvement in the capital base and maintenance of profitability".
Since 1969, we have been witnessing Bank mergers and acquisitions, mainly because of the failure of private sector banks as quoted in the earlier paragraphs of this report. Mergers and acquisitions were done in public interest and to save depositors. Most of the private Sector banks, which could
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not survive, were bailed out by Public sector Banks. The following list will reveal the merger phenomena in banking Industry since 1961.
Number of forced and voluntary mergers from 1961-2006
Forced Mergers Market driven Mergers Convergence of Financial Institutions into
Banks
Regulatory Compulsions
2113521
Total number of mergers 80
(Source: Compiled from various publications of RBI)
LIST OF BANKS IN INDIA MERGED FROM 1961-2009 TABLE B
S.No. Name of Bank Merged(Transferor Bank)
Merged / Amalgamated with(Transferee Bank)
Date of Merger /
Amalgamation01 Prabhat Bank Ltd National Bank of Lahore Ltd. 09/03/196102 Indo-Commercial Bank Ltd Punjab National Bank 25/03/196103 Bank of Nagpur Ltd Bank of Maharastra 27/03/196104 New Citizen Bank Ltd Bank of Baroda 29/04/196105 Travancore Forward Bank Ltd State Bank of Travancore 15/05/196106 Bank of Kerala Ltd Canara Bank 20/05/196107 Bank of Poona Ltd Sangli Bank Ltd 03/06/1961
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S.No. Name of Bank Merged(Transferor Bank)
Merged / Amalgamated with(Transferee Bank)
Date of Merger /
Amalgamation08 Bank of New India Ltd State Bank of Travancore 17/06/196109 Venadu Bank Ltd South Indian Bank Ltd 17/06/196110 Wankaner Bank Ltd Dena Bank 17/06/196111 Seasia Midland Bank Ltd Canara Bank 17/06/196112 Kottayam Orient Bank Ltd State Bank of Travancore 17/06/196113 Bank of Konkan Ltd Bank of Maharastra 19/06/196114 Poona Investors Bank Ltd Sangli Bank 28/06/196115 Bharat Industrial Bank Ltd Bank of Maharastra 01/07/196116 Rayalaseema Bank Ltd Indian Bank 01/09/196117 Cuttack Bank Ltd United Bank of India 04/09/196118 Pie Money Bank Pvt. Ltd Syndicate Bank 04/09/196119 Moolky Bank Ltd Syndicate Bank 04/09/196120 Merchants Bank Ltd Tanjore Permanent Bank Ltd 04/09/196121 Tezpur Industrial Bank Ltd United Bank of India 04/09/196122 G.Raghunathmull Bank Ltd Canara Bank 04/09/196123 Satara Swadeshi Commercial Bank Ltd United Western Bank Ltd 06/06/196124 Catholic Bank Ltd Syndicate Bank 11/19/196125 Phaltan Bank Sangli Bank Ltd 11/09/196126 Jodhpur Commercial Bank Ltd Central Bank of India 16/01/196127 Bank of Citizen Ltd Canara Banking Corp.Ltd 17/10/196128 Karur Mercantile Bank Ltd Laxmi Vilas Bank Ltd 19/10/196129 People Bank Ltd Syndicate Bank 14/11/196130 Pratab Bank Ltd Lakshmi Commer. Bank Ltd 11/12/196131 Unity Bank Ltd State Bank of India 20/08/196232 Bank of Algapuri Ltd Indian Bank 14/08/196233 Metropolitan Bank Ltd Indian Bank 14/08/196234 Cochin Nayar Bank Ltd State Bank of Travancore 08/02/196435 Salem Shri Kannikaparameshwari
Bank Ltd.Karur Vysya Bank 01/06/1964
36 Unnao Commercial Ltd Bareilly Corporation Ltd 12/08/196437 Latin Christian Bank Ltd State Bank of Travancore 17/08/196438 Southern Bank Ltd United Industrial Bank Ltd 24/08/196439 Shri Jadeya Shankarling Bank Ltd Belgaum Bank Ltd 26/10/196440 Bareilly Bank Ltd Benarus State Bank Ltd 16/11/196441 Thya Bank Ltd Lord Krishna Bank Ltd 16/11/196442 Allahabad Trading & Bkg.Corp. State of India Ltd 01/09/196543 Vettaikaran Padur Mahajan Bank Ltd Bank of Madura Ltd 01/09/196544 Malnad Bank Ltd State Bank of Mysore 06/10/196545 Josna Bank Ltd Lord Krishna Bank Ltd 13/10/1965
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S.No. Name of Bank Merged(Transferor Bank)
Merged / Amalgamated with(Transferee Bank)
Date of Merger /
Amalgamation46 Amrit Bank Ltd State Bank of Patiala 03/02/196547 Chawla Bank Ltd New Bank of India 23/04/1969
Banks Amalgamated / Merged since Nationalisation of Banks in India48 Bank of Bihar Ltd State Bank of India 08/11/196949 National Bank of Lahore Ltd State Bank of India 20/02/197050 Miraj State Bank Ltd Union Bank of India 29/07/198551 Lakshmi Commercial Bank Ltd Canara Bank 24/08/198552 Bank of Cochin Ltd State Bank of India 26/08/198553 Hindustan Commer.Bank Ltd Punjab National Bank 19/12/198654 Traders Bank Ltd Bank of Baroda 13/05/198855 United Industrial Bank Ltd Allahabad Bank 31/10/198956 Bank of Tamilnadu Ltd Indian Overseas Bank 20/02/199057 Bank of Thanjavur Ltd Indian Bank 20/02/199058 Parur Central Bank Ltd Bank of India 20/02/199059 Purbanchal Bank Ltd Central Bank of India 29/08/199060 New Bank of India Punjab National Bank 04/09/199361 Bank of Karad Ltd Bank of India 1993-199462 Kashi Nath Seth Bank State Bank of India 01/01/199663 Punjab Co-op.Bank Ltd Oriental Bank of Commerce 08/04/199764 Bari Doab Bank Ltd Oriental Bank of Commerce 08/04/199765 Bareilly Corp.Bank Ltd Bank of Baroda 03/06/199966 Sikkam Bank Ltd Union Bank of India 22/12/199667 Times Bank India HDFC Bank Ltd 26/02/200068 Benaras State Bank Ltd Bank of Baroda 20/07/200269 Nedungadi Bank Ltd Punjab National Bank 01/02/200370 Bank of Madura ICICI Bank 10/03/200371 Global Trust Bank Ltd Oriental Bank of Commerce 14/08/200472 Bank of Punjab Centurion Bank 29/06/200573 United western bank Ltd. IDBI Ltd. 03/10/200674 Bharat Overseas Bank Ltd Indian Overseas Bank 01/04/200775 Sangli Bank Ltd ICICI Bank 19/04/200776 Lord Krishna bank Ltd Centurion bank of Punjab Ltd 29/08/200777 Shri Suvarana Sahakari Cooperative
Bank Ltd. Indian Overseas Bank 19/05/2009
Disregarding these historical trends of bail off of private sector banks by public sector banks and studies in support of performance and efficiency of the PSBs by experts quoted above, time and again FM through media and in person has
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pressurized timing with last General Election to Loksabha the chief of Public sector banks to create a favorable atmosphere through a dictated national debate in the media on the subject. Being inspired or to please or appease the FM, recently 3 banks i.e. Oriental bank of commerce, Indian bank and Corporation bank, have formed an OIC association in the name of strategic alliance to share each others market, assets, business, branches, technology etc. MOI has been signed with detailed guidelines for functioning and operating as one entity. The coverage of the MOI is
1) Building a common payment system 2) Sharing IT resources 3) Sharing treasury resources 4) Foraying capital market and international and other financial ventures 5) Bank assurance 6) Business syndications and sharing 7) Sharing training resources 8) Common procurement of IT and other assets wherever feasible etc.
Now timing with election 2014 The Finance Ministry preparing the ground for consolidation among public sector banks (PSBs)? Its recent missive to the 26 PSBs seems to suggest so.
The Ministry said there is a need for continuous interaction between these banks to improve their functioning.
This can be achieved by sharing experiences and lessons learnt which in turn will help fine-tune internal policies and procedures.
Seven large PSBs – State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Bank of India (BoI), Union Bank of India, Central Bank of India and Canara Bank – have been assigned the responsibility of co-ordinating the activities of 19 other PSBs in six specific areas of operation.
The areas of operation with scope for functional improvement human resources, business process re-engineering, e-governance, internal audit for fraud detection and protection, recovery, and asset-liability management.
The 26 banks have been divided into seven groups. SBI has been given the responsibility of co-ordinating the functioning of its five associate banks.
PNB is the co-ordinator for Dena Bank and Vijaya Bank, BOB for IDBI Bank and UCO Bank, BOI for Oriental Bank of Commerce and Andhra Bank, Union
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Bank of India for United Bank of India and Punjab & Sind Bank, Central Bank of India for Indian Bank, Allahabad Bank and Bank of Maharashtra, and Canara Bank for Indian Overseas Bank, Syndicate Bank and Corporation Bank.
The group coordinators of the banks would interact with the Ministry on a quarterly basis.
It may be pertinent to note that the RBI-appointed Narasimham Committee on Banking Sector Reforms had, in 1998, recommended restructuring of the domestic banking system.
The committee recommended that the banking landscape should evolve in such a way that there should be three to four large banks, which could become international in character, and eight to ten national banks and local banks confined to specific regions. Rural banks, including Regional Rural Banks, are confined to rural areas.
Though it has been 14 years since the Narasimham Committee report was put together, there has been no serious attempt at consolidation in the public sector banking space. SBI, which has assimilated two of its associate banks – State Bank of Saurashtra and State Bank of Indore – is the only exception.
This is cartelisation in Banking Industry and to develop synergies in functioning and ultimately to take step for merger. It is a prelude to merger. Now banks have also started to explore possibility of forming such alliance. Recently Union bank of India, Bank of India and Infrastructure Development Finance Co. Ltd (IDFC) have formed Loan syndication and lending alliance. They have also committed to work together in international operations, to offer cash management, management services and in training. This is also one form of cartelisation i.e. forming an alliance to deal with a business. These moves are nothing but back door methods of ultimate merger, which will help corporate capital.
BANKING CONSOLDTION UNWRRANTEDDanger of Merger of Nationalized Banks
Employees of public sector banks went on a strikes during the period under review to protest against what they feel as forced merger of public sector banks. The UPA government in its earlier term had vigorously advocated consolidation but achieved very little. The only merger of consequence was the takeover by SBI of its smallest associate, the State Bank of Saurashtra. Surprisingly, despite all the talk of mergers and amalgamations, there were few policy inputs. Whatever
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decisions the government took to speed up individual mergers were ad hoc and mostly prompted by concern for the depositors of a failed institution. Although no further mergers has taken place recently, the subject has been making headlines.
Despite the apparent Government support to a relatively old idea — the Narasimham Committee II (1997) had recommended the creation of four or five mega banks to take on international competition — the path towards consolidation bristles with obstacles particularly, in the dominant government owned banking sector. A parallel debate over M&As among private sector banks has been going on. That has been fuelled by the even larger issue of allowing a major role for foreign direct investment (FDI) in Indian banking.
Only theoretical gains
After a period of relative quiet, the subject of consolidation in the Indian banking industry is back in focus. While no policy statements have come from either the government or the Reserve Bank of India, reports of a meeting that the chairmen of the five top public sector banks had with officials of the Finance Ministry have evoked renewed interest in the subject. The heads of Punjab National Bank, Canara Bank, Bank of Baroda, Bank of India and Union Bank of India were reportedly asked for their views on consolidation so that a road map could be prepared.
No discussion paper, leave alone a major policy announcement on bank mergers, is round the corner. In fact one of the participating Bank Chairman of Punjab National Bank — said a few days later that consolidation of public sector banks through mergers would be a long-drawn out affair and that it was vital to convince all the stakeholders before finalizing a merger.
The idea of encouraging mergers among banks to create ‘global sized' institutions sounds attractive but may not be the right way to boost capital adequacy. The merged entity's capital will be just sufficient to support the aggregate business. A merger does not necessarily free capital from either of the merging banks. Any of the existing PSBs is unlikely to have ‘spare' capital. Moreover, there are fundamental objections to the merger route.The argument that a merged entity will be in a better position to raise capital than individual banks may not be strictly correct.
For PSBs the main argument of the government in favour of growing in size through the M&A route is to take on competition globally. The Government's view on the subject as articulated by the Finance Minister is that "competition, convergence and consolidation" will be the key drivers of the banking industry in the future. Hence PSBs ought to consolidate, a course of action that will also help
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reap other synergies by reducing transaction costs and foray into new areas. That at least is the Government's position. Unfortunately this position, while theoretically sound, cannot be supported on practical grounds.
Experience so far with mergers involving one or more PSBs has not been happy. Needless to add, the main prop to such mergers has come from the Government itself, to save the new generation Global Trust Bank for instance. (It was merged with the public sector Oriental Bank of Commerce). This is a merger that was not dictated by market forces .It is not even clear whether the board of OBC arrived at such a decision on their own, however much they may claim to have reached a "win-win" deal in hindsight.
A much earlier "forced" merger — of New Bank of India with Punjab National Bank — created major problems for both. There is plenty of evidence to show that PNB's fortunes were dragged down and, what was perhaps even more damaging, its culture was corrupted. Banks, including those in the government fold, have a culture and identity of their own which no amount of "standardised " policy diktats could suppress over all these years.
The Government's thinking seems to be conditioned by an implicit faith in the "universal banking " model. If PSBs can come together they can offer a variety of services besides commercial banking (or pool together their existing strengths in nice areas). They can truly reach universal banking status with all the attendant advantages in a competitive environment.
The idea is deceptively simple but as recent experiences the world over shows is seriously flawed. In a conceptual sense universal banking looks good but when advocated as the end product of a consolidation exercise does not have any argument in its favour.
The world's largest banking group viewed under many parameters including profitability is the Citigroup. An outstanding example of a financial services group that grew through M&As, the bank has been asked by the Federal Reserve Board to desist from further acquisitions until it refined its systems and procedures. If a bank such as the CITI, which has been a global force, could be faulted on its basics, there is clearly a message for Indian PSBs to be far more circumspect than what the Government would recommend. Besides, universal banking itself seems to be going out of fashion. In India it is unlikely that banks will be able to impress all their customers across a variety of products. A deficiency in one area, not necessarily its main business, can affect its image disproportionately. Even more damaging is the fact that M&As can bring in disparate cultures that cannot be harmonised simply because of common ownership. The Citigroup has been in the news for all the wrong reasons, with
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most of the problems emanating from the actions of its investment-banking arm. Those arguing for M&As cannot ignore international developments even if they blithely choose to ride over the largely negative experiences in India.Elusive synergies
It is difficult to see synergies accruing from such mergers. For instance, seeking a geographical or cultural fit between two banks is only theoretically possible. All government-owned banks have acquired an all India character even though in their private sector days they have regional in character. A merger will entail duplication of branch network especially in towns and metros.
Synergy in technology application will be equally elusive given that the banks are in different stages of technology absorption and use different platforms.
A more difficult task is to achieve a cultural fit post-merger. Though all of them are government-owned, each has certain unique cultural strengths that cannot be retained after the merger. In their pre-nationalisation days, some of the banks had affinities with specific business activities and groups. These have continued under government ownership. For instance, Bank of India and Bank of Baroda have had a strong stock market tradition, which has flourished well into their public sector days. There is a real possibility that such strengths will be dissipated after merger with a bank with little exposure to the stock markets.
Human factor
A successful merger implies a reasonably smooth integration of staff and human resources related systems. This will be, by far, the biggest challenge. By their very nature, bank or financial service entities are people-centric. It is not clear whether those who advocate mergers as an easy option are aware of the strengths of such human capital. There are many other reasons why a merger between PSBs will neither be easy nor beneficial.
Bank consolidation: pitfalls of a hasty decision
One outcome of the present global crisis is that large banking monsters have come to be feared. That is why the recent death anniversary of Lehman Brothers drew a barrage of comment. And Lehman wasn’t even a bank, it was an investment bank. We worry now not just about large banks but about ‘systemically large’ financial institutions.
Some of the world’s biggest banks, the Citigroup notably, which relied heavily on mergers and acquisitions to grow phenomenally, have been rapped on the
knuckles by the regulators and are realising that such stupendous inorganic growth has come at a price.
In India, there is a revival of the clamour for bank consolidation. The views of finance minister, echoed by chairman of public sector banks wants Indian banks to grow bigger. The chairman of SBI has been quoted as saying: “The size of Indian banks is not good enough, we need to consolidate....Even SBI is not large enough to serve Indian corporates”. he has suggested that there should be at least two to three banks bigger than SBI and half a dozen banks the size of SBI in the country.. Even if all the 26 PSBs are merged into one single Bank, the total capital will be only $ 3 billion ( Rs. 12,000 crores) whereas Banks like StanChart, HSBC, Citi Bank, etc. operate with a capital of 60 to 70 billion dollars. Further, the fallacy that bigger the size stronger bank has been exposed with the fall of giants like AIG, Lehman Bros.etc. India needs expansion of banking and not consolidation of banks.
That apart, the arguments typically made for bank consolidation in India lack substance:
Indian banks are much smaller than global giants: True. In 2007, SBI was not even one-tenth the size of the tenth largest bank in the world. But this also means that no amount of consolidation will give Indian banks a global size in the foreseeable future.
Our banks need to be bigger in order to meet the needs of large corporates: Why should one bank meet the needs of any large corporate on its own? From the point of view of risk management, consortium financing is preferable. Some large requirements of corporates, such as overseas finance, cannot be met by Indian banks, however large they may become.
The Role of Foreign Capital in Consolidation
Certain key banking topics are back in focus. The ownership issue figured prominently in the budget speeches, during the period under review with a strong indication therein that foreign banks will henceforth also be allowed to incorporate subsidiaries in India. Hitherto, they could only expand in India by opening branches. Only one of the two routes will be allowed but the latest announcement along with a few earlier ones clearly shows the increasing role being afforded to foreign banks and foreign direct investment (FDI). A relaxation in the existing restriction on voting rights of bank shareholders has been contemplated in the budget speech. At present, irrespective of the size of the shareholding no one can have more than 10 per cent of voting rights. Even earlier,
there has been a clarification that overseas investors (FDIs) can invest up to 49 per cent of the equity in the private banks although in the case of PSBs it has been restricted to 20 per cent.
The Government has reiterated its intention to remove the cap on voting rights in banks which will increase the stranglehold of foreign capital on the banks and thereby on the people’s money. The Government somehow wants to delete Section 12 (2) of the Banking Regulations Act to remove the present ceiling of 10% on voting rights of FDI in Banks. There will be unrestricted entry of foreign capital in our Banks and with pro-rata voting rights, they would control our people’s money.
It is, therefore, certain that foreign capital will play a role in the consolidation of the banking industry, a development widely anticipated by several experts including the Finance Minister. For the present not many structural changes are on the cards for the public sector banks. But the Government has a medium term goal of reducing its stake in the PSBs to a third. In all the PSBs, however, the Government will hold the majority stake for now. Hence, though FDIs can play a role in the PSBs, the question of their taking control does not arise for now. Not to be forgotten at this point of time most PSBs command pathetic valuations. It will be scandalous to let go control at these levels.
It is naive to think that the opposition to bank mergers is confined to trade unions. One should really examine whether the presumed benefits would really accrue. The idea of creating bigger banks to take on competition sounds attractive but one must realise even the biggest among Indian banks are small by global standards. A merger involving banks in the top rung say, SBI, Bank of India and Punjab National Bank will not create a ‘world champion’ as the merged entity will still be small.
The argument that a merged entity will be in a better position to raise capital than individual banks may not be strictly correct. Government-owned banks will have to always reckon with the condition that their majority shareholder will not let its shareholding fall below 51 per cent. Some of the PSBs, including SBI, are near that floor. Other banks may have some leeway, but they too will be soon constrained. A merger between two such entities will not help.
Other routes to raise capital such as divestment in India or sale to overseas investors are ruled out for now. It is futile to talk of the government — any government for that matter — relinquishing its majority stake in the PSBs. Denationalisation cannot have many votaries. The world over, the biggest private banks are seeking the sanctuary of government investment and ownership. In India, government ownership has once again stood the banks in good stead during
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the financial sector crisis. So for now the only alternative is for banks to receive capital from the government.
Privatization of banks is a discredited idea the world over at the current juncture, as could be seen in the number of forced mergers with nationalized banks as shown in table A& B above in page … . if the nationalized banks had not bailed out the private banks in moratorium in time they would collapsed like cookies bamboozling depositors hard earned savings. The possibility of some foreign buyer acquiring an Indian bank is remote, given the current state of the financial sector abroad.
A bill introduced in Parliament some years ago to bring down the government stake to 33.33 per cent in PSBs is languishing even though the then Finance Minister has said that the public sector character of these banks will be maintained post-dilution.
Most importantly, the merger advocates ignore the fact that beyond a point size does not increase efficiency. Creating behemoths from two already large banks will not help in either facing competition or raising capital. On the other hand, several more layers will be added to the existing bureaucratic structures in government-owned banks.
The Myth of Indian Banks’ insularity
In the middle of 2008 crisis hoarse on the country’s financial system insulated from the economic may hem of World Capitalism C. Rangarajan, Rajya Sabha M P and former Chief of the Prime Minister’s Economic Advisory Council claimed that “direct contagion effect” of the crisis of international financial market “will be very small”. He added with a false confidence that “the exposure of Indian Banks to toxic assets is minimal and is confined to overseas branches of Indian Banks”. The facts however, do not corroborate such tall claims. It is a fact that the since 1990s all the governments at the Centre tried to push through banking sector reforms and bank employees consistently resisted the moves over so many years. Riding on the crest of up-gradation of banking service, policy makers have so long tried to evolve “giant size” banks by consolidation. In the age of imperialist globalization they have argued that such consolidation will make such banks “globally competitive”. It was simply played down that such mergers would be followed by large-scale closure of branches; besides, lakhs of common people would be denied banking services. With the ‘reforms’ programme under globalization in the period since 1990 banking sector reforms were followed. Over those years, reforms have acquired, as it were, two basic faces : One, which may be broadly categorized as the Basic face and the other, the Indian face while the former is the most visible, the later came to be visible in the past couple of years.
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The Basic face refers to the almost mechanistic implementation of Basic norms devised by the Bank for International Settlements (BIS) in the name of upgrading the Indian Banking system to international standards. The Indian face clearly refers to reforms in respect of credit, amalgamation, etc..
The reforms in the banking sector faced resistance from the bank employees which could force a go-slow to this effect. If the face market neo-liberalists had their full go, the public sector banks would have merged, consolidated into bigger banks allowing the whole gamut of banking money at the command of big business houses. And the corporates, with lakhs of crores of rupees of public money at their command would have “competed” in the international market. Not only that they would have enjoyed investing in major US banks and taken money and common investors down the drain as their counterparts are found to have gone the expected way.
The reforms in the banking sector, if followed in toto as prescribed by the World Bank, would have also meant handing the real control of the Public Sector Banks over to the directors representing private shareholders. These directors would have been then empowered to appoint executives and decide their emoluments and perquisites, etc.
Despite the chorus of protests during the last 15 years, the policy makers have been responsible, for steadily making the banking system corporate –contractor centric. The result has been a reprehensible drift towards the corporate houses despite the occasional refrain of ignoring the rural sector. The second Narasimham Committee in its Banking Sector Reforms made it eminently clear: “Reforms cannot be entirely painless. The strengthening of the system will take its toll on the weak and inefficient competition is a stern taskmaster and there is no room for laxity. In its lexicon the message was loud and clear Indian Banks have to be competitive with big banks of the world and so the expected downslide has to be tolerated. Thus way back in 2000 itself the giant banks like Citi Bank and Bank of America did command a money power of Rs. 50,16,000 crore in contrast with the incomparably small combined capital of Indian Public Sector banks to the tune of Rs.6,50,000 crore ! Strangely enough in the first report of Narasimham it was stated with high expectation.. It is a figment of imagination that economically weak Indian banks will ably compete with giant foreign banks. Liberalization theorists argued in the same fashion to make room for MNCs to grab the Indian market. In the same report, policy decision was advised to make Indian public sector banks become hostage to the whims of foreign financial tycoons. It said “At present, the laws stipulate that not less than 51% of the share capital of Public Sector Banks should be rested with government and similarly not less than 55% of the Share Capital of the State Bank of India should be held by the Reserve Bank of India. The Committee believes that the minimum stipulations should be reviewed.
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It would suggest that the minimum share-holding by Government / Reserve Bank in the equity of nationalized Banks and State Bank should be brought down to 33%.” Thus it made it clear how to weaken the State controlled banks in order to invite multinational banks in India.
As the ‘reforms’ programme in all sectors of Indian economy is meant for re-colonization of Indian economy and creating a small privileged class as beneficiaries so long as foreign banks made large scale inroads while bank loans were geared, to elevate the rich class in Indian society. The Narasimham Committee directive made it clear that in case of sanctioning loans drastic reduction is to be made by scaling down loans to agriculture, small-scale industries and unprivileged sections of society from 40 percent to 10 per cent. The financial scenario increasingly changed with the steady entry of foreign banks in India. Similarly, the focus of Public Sector banks has shifted to the corporate elite, consumer credit and capital market related activities. And one of the by-products of banking reforms under IMF/World Bank diktats was the deceleration in the quantum of flow of credit to the rural sector and the deterioration of the health of the credit delivery system as a whole. Following the IMF/World Bank Theology, development of the capital market has become an obsession of all the governments since the 1990s. Various artificial props like throwing open portfolio investment to Foreign Institutional Investors (FIIs), asking Public Sector banks to increase their exposure to the capital market both directly and indirectly and exemption of dividends from income tax have been given. The result has been severe shifting of the Indian Public sector banks. Moreover, ‘liberalization’ of banking marked a major shift of finance from productive sector to consumption. The RBI Annual Report 2006-07 noted that “the share of personal loan (i.e. loans for housing, education, automobiles, consumer durables, credit card expenditures, etc.) in total bank credit extended by scheduled commercial banks increased from 6.4 per cent at end March 1990 to 23.3 per cent at end-March 2006, driven by housing as well as non-housing loans. While the share of housing credit in overall credit rose from 2.4 per cent to 12.0 per cent that of non-housing retail credit rose from 4.0 per cent to 11.3 per cent.” By contrast, over the same period, the share of agriculture in Bank credit fell from 15.9 per cent to 11.4 per cent and that of small scale industry plummeted from 11.5 per cent to 6.5 per cent. The above makes it abundantly clear the Narasimham prescription for banking sector reforms is followed by successive governments in India
Post-merger hurdles
Inexplicably, the debate has sidestepped some crucial issues such as rationalising the manpower and branch network after bank mergers. In the reform era, the
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strengths of public sector banking — the branch network and superbly trained manpower — have been initially discounted. Yet today’s urgent tasks of the financial sector — social banking and financial inclusion — require these strengths to be harnessed to an even greater degree than before. Bank consolidation will create redundancy, demotivate staff and make the financial sector less inclusive. There are lessons to be learnt from past mergers involving PSBs. Punjab National Bank was asked to take over New Bank of India at what turned out to be an enormous cost for the former. PNB, among the top rung banks, went down by several notches after the merger. The same fate befell government-owned Oriental Bank of Commerce after it was asked to take over the failed Global Trust Bank.
Surprisingly, cultural issues and regional strengths are not discussed when mergers among banks are discussed. Almost all banks in India have grown from specific regions and have retained certain unique strengths despite some of them coming under the government fold. A merger of such institutions with another bank would whittle down such strengths. An outstanding example here is the decision to merge State Bank of Saurashtra (SBS) with SBI. The SBS had a strong tradition in the Saurashtra region of Gujarat and it is difficult to see the merged bank’s strengths accruing to SBI. The SBI and its associates have a common technology platform and use the same logo. The rationale for adding some more bank branches to SBI’s already large network under a merger is highly questionable.
Finally, it is good to remember that bank consolidation in India is very different from moves to consolidate companies in specific industries or segments. For all the excitement it evokes, consolidation is still unwarranted in Indian context . The merger of banks, as being pressurized to materialize, will further deteriorate the banking service with smaller number of branches and fewer numbers of staffers. The much talked about agricultural loan will also remain a dream for the peasants. In January 2009 when the economy was in deep distress an RBI directive to the PSBs (Public Sector Banks) has permitted the use of agencies for opening bank accounts, collection of deposits, distribution of small amounts of loans and collection of loaned money, etc. Besides that, if the cheque clearing arrangement is entrusted with private institutions, it is estimated, as the daily income of nationalizes banks will be reduced to the extent of 70 to 80 percent.
