Banking, the principal intermediation agency, has a vi tal role to play in the relm of financial globalization.
Its importance, however, differs from country to country. Generally speaking, in developing nations, commercial banking has a primacy of place, not so in developed nations. With convergence of commercial banking, securities trading and insurance streams, banking has indeed undergone a metamorphosis.
While banks are fast emerging following the convergence model, the fierce competition is forcing these mega banks to go global and also to offer many other diversified financial services. Under these conditions, what will happen to the small and medium-sized banks? Do they have prospects for survival or will they be taken over by big banks or will they exit gradually under the pressure of competition?
China has small-sized banks, about 100 in number, catering to Small and Medium Enterprises (SMEs) sector, accounting for over 5% of total assets with a 0.6% return on assets.
Japan also has this kind of banks, in the form of regional banks (64 in number) and city banks (12), both if combined, command a significant market share. In the US, there are community banks, accounting for 15% of assets. In India, there are old generation private banks, accounting for 4.5% of assets. All these banks operate in niche markets, confining to narrow geographic regions, serving middle class segment, by adopting the strategy of `relationship banking'. The regulators need to support them in the interest of the `equitous growth' of the economy. |
