Expecting a takeover bid from foreign banks, the private banks' valuations have run up sizeably, making Public Sector Banks (PSBs) look very cheap. However, by their sheer size and pan-India presence, PSBs are in a better position to consolidate and compete with foreign banks.

The Indian banking landscape is set for a big-bang Merger and Acquisition (M&A) activity shortly. In fact, the first salvo may already have been fired. Foreign banks are likely to become more active and aggressive consequent to the liberalization of banking guidelines in FY09 as per WTO agreements. We expect that a number of small private banks may be the target of foreign banks to achieve inorganic growth.

In anticipation of being taken over, the private banks' valuations have run up sizeably, making PSBs look very cheap, particularly when they have done exceedingly well on various valuation parameters. By their sheer size and pan-India presence, we see PSBs better positioned to consolidate and compete with foreign banks in the emerging competitive scenario.

The Analyst Magazine, Public Sector Banks, PSBs, Merger and Acquisition, M&A, Indian banking sector, World tread organization, WTO, National stock exchange, NSE, Non-Performing Assets, NPA, Core Banking Solutions, CBS, Reserve bank of India, RBI, Khandwala Securities Limited.