While expanding the operations, banks must look into the various aspects like rational size, in-house expansion or cross-border expansion, organic or inorganic growth. There have been ases where too large a size created complex problems for a bank, which resulted in failure or heavy losses and even endangered its very existence. Inorganic growth can help in immediate expansion but cultural differences can cost the shareholders dearly.
Banks and the banking process are undergoing fundamental changes both in global and Indian markets. Deregulation, competition, technology advancement, squeezing margins and other developments have been changing the face of banks in India. Banks are now realizing the need to grow in terms of size and fundamentals.
Many persons have spoken about the M&As among public sector banks to make them stronger and bigger. State Bank of India (SBI) is considering the merger all its subsidiaries and has plans to buy two foreign banksone each in Africa and Asia. "The idea is to enhance our presence in areas overseas, where there is a large Indian population. We intend to take over banks in areas which will provide us with an edge and enhanced presence as part of our strategy to increase business from foreign operations," said AK Purwar, Chairman of SBI. Several other banks also have similar plans to expand their operations in non-concentrated territory and overseas. TheUnited Progressive Alliance (UPA) government has also made obvious its intent to consolidate the banking sector.
Does size matter for a bank? What is the likely effect of size on the operating cost of a bank? Does larger size provide more stability to a bank? What is the best way to enlarge the organizationorganic or inorganic growth? These are some of the questions for which a bank must find answers before expanding in-house or overseas. |
