Banks have to grow 5-fold to meet funds needs by 2015: McKinsey

Domestic banks will have to scale up their asset size five times over the next five years, if they want to cope with demand for capital from an economy that is clipping at near double-digits,says an industry report.

The report, prepared by McKinsey & Company, says the No 1 bank in the country (without naming State Bank) will have to scale up its asset size to $800-900 billion by 2015 from the current size of $200 billion (March 2009), while the No 10 will have grow to $90-100 billion by then.

The report further says the No 1 Chinese lender will have to grow its size to $4,000-4,500 billion by 2015, up $1,700 billion in 2009, while that of the No 10 lender will be $800-900 billion against the present $190 billion.

"A fast growing Asia will need $400-450 billion in capital by 2015, of which $380 billion will be for Chinese and Indian banks," the McKinsey report, titled Sustainable growth through inclusive institutional credit flow, said.

The report further says by 2014, the combined revenues of the domestic banks will be $73 billion, while that of China it will be $433 billion. But does not mean that foreign banks can have a quick run either in the country or in China, warns report. Because, the report says, "over 60 per cent of these revenue pool are subject to access restrictions that limit the traditional branch-based approach."

The report also says that by 2014, the five largest emerging Asian economies-China, India, Indonesia, Malaysia and Thailand-will alone account for 45 per cent of the banking assets and over 60 per cent of market capitalisation of all Asian banks, including those of the developed Asia -- Japan, Korea, Taiwan, Singapore Hong Kong and Australia.

Late last week, both State Bank and ICICI had called for the need to massively scale up their asset size to meet the growing demand for capital from a fast growing economy, which is projected to clock a 8.5 per cent plus growth this fiscal, even as most of the world is still reeling under worst recession that started in the last quarter of 2007.

Stating that the balance sheet size of his bank is at par only with the tenth largest Chinese bank, State Bank chairman O P Bhatt said in the next five years, there would be an addition of up to 500 million to the already bulging middle class bandwagon in the country, which will demand huge support from the banking and financial sector.

"The public sector banks will have to play a pivotal role in helping the large middle class populace meet its aspirations," he said, and expressed his doubts whether the state-owned banks have the wherewithal to meet such demand.

"I suspect if the public sector banks will be able to cope with the demand, though I hope I am proved wrong," he said, addressing a banking summit over the weekend.

ICICI Bank Chief Executive and Managing Director Chanda Kochhar too said the banking sector will have to grow at 25 per cent annually over the next five years if the country is to sustain the 8-10 per cent per annum growth rate.

They also called for the need to deepen the bond, debt and take-out financing markets so that banks can meet the funding requirements necessary for infrastructure development.

The Government has set a $1 trillion investment in the infrastructure sector in the 12th Plan period and is on the way to set up a Rs 50,000 crore dedicated infrastructure fund.