And then there were six

New private banks sector topography altered

Within 72 hours of each other, two new generation private sector banks have disappeared from the scene.

IDBI Bank on Thursday decided to merge with its parent, Industrial Development Bank of India (IDBI), following "a request" from the development finance institution.

On Monday, the Reserve Bank of India (RBI) announced the amalgamation of Global Trust Bank (GTB) with Oriental Bank of Commerce (OBC).

This means of the nine new generation banks set up post July 1993 "" when the RBI permitted the entry of private sector banks into the industry "" three have been three early deaths: TimesBank which merged with HDFC Bank, GTB and now IDBI Bank.

And now there are six. Six of the original new generation private sector banks have made it through the first 10 years of new private banks entry into the sector.

The strongest of the lot is ICICI Bank, which following the reverse merger with the parent, is today second to State Bank of India. HDFC Bank following the merger of TimesBank, is the second largest private sector bank today, but could end up taking a back-seat with the merger of IDBI Bank into IDBI.

IndusInd Bank has also grown its asset base with the merger of Ashok Leyland Finance into the bank to about Rs 15,000 crore as on March 2004. UTI Bank had at one point in time also looked at a merger with GTB to grow in size.

The proposal fell through, and today UTI Bank is among the smaller of the players. Centurion Bank has had its own set of problems and is in the red, but with the injection of foreign capital through BankMuscat and Sabre Capital.

Bank of Punjab is among the smallest of the remaining six players today.

Mergers and amalgamations will now be the rule of the game in Indian banking industry and the Indian banking system will be left with four to five world class banks to compete in the domestic market and complement each other in the global environment, said A K Purwar, chairman SBI.

The new entity following the merger of IDBI Bank into IDBI will have an asset base of a little less than Rs 80,000 crore, and would emerge as the seventh largest banking entity in the country.

"Good for the banking industry as you need fewer and good players with healthy balance sheet to withstand the growing competition in the banking sector," said a senior private sector bank official.

The proposed merger has sent positive signals to foreign investors that the Indian banking sector is undergoingx a phase of consolidation, said a senior official from a private sector bank.

At the same time, other consultants aiding foreign entities with plans to set up base in the country, feel that the recent moves by the RBI and the finance ministry in terms of forced mergers are not conducive to promoting private capital.

It is another move towards consolidation in the banking sector. However, one has to see how the merged entity fares in cleaning up of its balance sheet, said the managing director of a private sector bank.

The first year of operations will be crucial as the entity will come into being in a rising interest rate scenario and will not have much scope to depend on its treasury gains to wipe out its non performing assets (NPA) which was not the case when ICICI was merged with ICICI Bank.

"The first two years would be tough for the entity however if the merged entity continues to focus on retail and the merger process is smooth the institution will emerge as a great competitor," said a senior industry analyst who has been tracking the performance of IDBI.