Presented To: Presented By:Ms. Harleen Mahajan Poonam KhuranaAsst. Professor Rashi SachdevaPCTE Ruchi Sharma

Ruchi Wadhwa

MBA- 2C

PRESENTATION ON

BANKING INDUSTRY

CALLS FOR

CONSOLIDATION

INDIAN BANKING INDUSTRY

• Banks act as the store as well as the power house of

the country’s wealth.

• Governed by the Banking Regulation Act of India,

1949 and monitored by the Reserve Bank of India.

• Size - Rs 66.7 trillion (US$ 1.22 trillion).

• Public sector banks account for

70% of the Indian banking assets.

Evolution of Banking Industry

Beginning of institutional banking with 3 joint stock banks. Phase 1

Pre- Nationalization Phase

•Birth of Joint stock Banking Companies.•Introduction of deposit banking & Bank Branches.

Trigger Events Phases Major Changes

Nationalization of Imperial Bank & 20 other scheduled commercial banks

Phase 2Era of Nationalization & Consolidation

• State Bank of India formed out of Imperial Bank.• 20 SCB’s •nationalized in two phases.

Acceptance of recommendations of the Narsimham Committee.

Phase- 3Introduction of Indian Financial & Banking sector Reforms & Partial Liberalization

• Interest rates deregulated.• Statutory preemption of resources eased more private players entry.

Hike in F DI ceiling

Phase- 4Period of Increased Liberalization.

• FDI ceiling for the banking sector increased to 74 % from 49 %• More liberal branch :Licensing followed.

Phase 4 continues more liberalization

expected

Structure of Indian Banking Industry

RETAILBANKINGRETAIL

BANKING

BUSINESSDIVISION

OTHER BANKING

BUSINESSES

TREASURYOPERATIONS

WHOLESALE BANKING

BUSINESS DIVISION

NPA’S IN BANKS

NPAs are a sum of those loans that are vulnerable to

go bad or default out of the total lending a bank has

done.

NPA’s as major challenge for Banking Industry

The banking sector has been facing the serious

problems of the rising NPAs.

One of the main causes of NPAs in the banking

sector is the Directed loans system.

Political interference, manipulation, misuse of fund

& and unreliable customer.

Causes of Increasing NPAs

Improper selection of borrower's activities

Industrial problem

Hike in interest rates

Low level of expertise

Loans to priority sector

Recession in the market

Government policies

Non Performing Assets of Public Sector Banks

Name of the Bank Total NPA’s (in Rs. Cr.) Percentage of which are of Micro & Small Enterprise

Allahabad Bank 42,907 17.1%

State Bank of India 23,074 13.6%

Punjab National Bank 4,379 30.8%

Bank of India 4,357 37.8%

Canara Bank 2,982 18.6%

IDBI Bank Ltd. 2,785 16.3%

Oriental Bank of Commerce

1,921 18.8%

Total NPA’s in all Public Sector Banks: Rs. 71,047 Cr

Non Performing Assets of Private Sector Banks

Name of the Bank Total NPA’s (in Rs. Cr.) Percentage of which are of Micro & Small Enterprise

ICICI Bank Ltd 9,816 0.9%

HDFC Bank Ltd 1,660 19.4%

Axis Bank Ltd. 1,587 10.6%

Kotak Mahindra Bank Ltd 603 11.0%

Total NPA’s in all Private Sector Banks: Rs. 17,971 Cr

Name of the Bank Total NPA’s (in Rs. Cr.) Percentage of which are of Micro & Small Enterprise

Standard Chartered Bank

1,148 0.7%

HSBC Ltd 996 6.0%

Citibank 839 19.7%

Barclays Bank 781 6.4%

Deutsche Bank 179 2.1%

Total NPA’s in all Foreign Sector Banks: Rs. 5,065 Cr

Non Performing Assets of Foreign Sector Banks

Consolidation

Refers to combining two or

more firms through purchase,

merger or acquisition.

The ownership is transferred to

the new company that is assets &

liabilities of the firms are absorbed by new company.

Consolidation through M&A

M& A is used as a strategy to achieve a:

larger size

faster growth

to become more competitive.

According to RBI’s Report:

Maximum mergers are in financial services (15.7 per

cent) and the acquisition activity was also the largest

(17.9 per cent) in this sector.

Duration Phase Number of Mergers

1961-1968 Pre-nationalization 46

1969-1992 Nationalization 13

1993-2012 Post-reform 21

Number Of Mergers From 1961-2012

Post Reform Mergers

Forced Mergers 13

Market driven Mergers 5

Convergence of Financial Institutions into Banks

2

Regulatory Compulsions 1

Some successful consolidations in Banking Industry

Benefits of Consolidation

Withstand external assaults more effectively

Banks with complimentary expertise

Broadened geographical & regional spread (un-served area)

Market image and brand name

Easy to venture overseas

Single window service

Saving

Effective absorption of new technologies

Need for ConsolidationIn

Banking Industry

I. Synergy:

E.g.- Oriental Bank of Commerce’s merger with Global

Trust Bank.

Benefits:

• OBC gained 104 branches, 276 ATM’s, 1400

employees & 1 million customer base.

Drawback:

•Merger resulted in low CAR for OBC, which was

detrimental to solvency.

II. Growth:

E.g.- ICICI Bank Ltd. Acquires Bank of Madura

(March '01)

Benefits:

• The branch network of the merged entity increased

from 97 to 378.

• ICICI Bank gained additional customer base of 1.2

million & asset base of crore.

III. Strategic motives

E.g.- HDFC Bank Acquires Centurion Bank of Punjab

(May '08)

Benefits:

• The merged entity has an asset size of Rs. 109718 crore

(7th largest in India).

• Improved distribution with 1148 branches & 2358

ATM’s.

IV. Market Entry

E.g.- Standard Chartered’s merger with ANZ Grindlays

Benefits:

• Standard Chatered became largest foreign bank in

India with over 56 branches & more than 36% shares in

credit card.

V. Regulatory Intervention

Eg- Bank of Baroda Acquires South Gujarat Local Area

Bank Ltd. (June 04)

Benefits:

The SGLAB customers were effectively transferred to

more secure & bigger bank.

Risks Associated

Inefficient handling of bigger units.

De-motivation among employees.

HR Issues.

Indian banking industry is presently at a crucial

juncture.

With increasing globalization in sight, there have

been calls for greater consolidation in the industry from

both the government as well as regulator.