The entry of foreign banks and the possible acquisition of Indian private banks by foreign banks after March 2009 will pose a major threat to the existing private banks in India.

Post-March 2009, it is expected that rapid changes will take place in Indian banking. The regulatory guidelines for starting foreign banks and acquisition of Indian private banks by foreign banks will become more liberal. As a consequence of this, the existing structure of ownership and management in a few private banks is likely to undergo a change. It is estimated that barring the top three private banks, the rest of the lot will be in a vulnerable position in this changed scenario. Some of the banks have already proactively started consolidating their position by focusing on technology; manpower and business strategies, increasing the capital base and improving the quality of asset portfolio for a better bottom line. It is also expected that a few private banks will initiate steps to increase their mass by going for mergers and acquisitions among themselves to position themselves properly to face the challenges.

The merger of State Bank of Saurashtra with State Bank of India (SBI) in the recent past is expected to be a test case for the proposed merger of the rest of the six subsidiaries with SBI. It is most likely that this mega merger may take place shortly. This will, no doubt, increase the scale of operations as well as the size and the asset base of SBI, which is already the leading bank in India, and may increase the gap between the No. 1 and No. 2 players in Indian banking.

Analyst Magazine, Indian Banking, Foreign Banks, Business Strategies, Mergers and Acquisitions, M&As, Private Equity, Public Sector Banks, Indian Banking Sector, Financial Sector Reforms, Nationalized Banks, Capital Markets.