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Globalization compels domestic banks in emerging market
countries to adopt international best practices in order
to stay competitive. The main impact includes higher efficiency
levels in the banking system in terms of more optimal capital
allocation, better profitability, prudent risk management
and greater competition, which ultimately benefits the end
customer through new products and services at affordable
prices. As banking in India strives for world-class excellence,
it is continually upgrading its policies, technology, leadership,
product range as also its size.
As per the road map released by RBI for foreign banks,
which is in line with WTO commitments given by India in
2005, foreign banks may be permitted to have overall investment
of 74% in the private banks of India from April 2009. Based
on this, the view in the sector is that consolidation within
the banking industry is imperative and the domestic players
have to enlarge their capital and product expertise if they
want to continue playing a significant role.
To this end, Indian banks are looking at inorganic growth
through mergers and consolidations. Indian regulator, in
the past, has permitted consolidation/integration of sorts
from the intent of saving sinking banks and their customer
base usually by way of political dictate. However, the interesting
exception has been the recent merger announcement of HDFC
Bank and Centurion Bank of Punjab. Both the banks have earlier
displayed their focus on consolidation through the successful
merger of Times Bank with HDFC Bank in 2000 and the mergers
of First Bank of Punjab, Bank of Punjab and Lord Krishna
Bank with Centurion Bank in 2005, 2006 and 2007 respectively. |
