Consolidation call

EDITORIAL

The Industrial and Commercial Bank of China (ICBC) created history last month by floating the world's largest initial public offer, beating the eight-year old record of Japan's NTT Mobile Communications.

Listed in Hong Kong and Shanghai, ICBC's market capitalisation is now about $158 billion, which is more than double that of all listed banks in India. This is a telling commentary on the scale of Indian banks, particularly when the economy is growing at over 8 per cent and the corporate demand seems to be insatiable.

While India Inc has a capital expenditure plan of over Rs 9 lakh crore over the next five years, the infrastructure sector needs another Rs 14 lakh crore. This means the total demand for resources in 2011 will be one and a half times of the outstanding loan assets of the entire Indian banking system today.

Can our banks live up to this challenge? The Round Table discussion, the excerpts of which have been carried in this magazine, focuses on this key issue. Eight leading bankers, who control about 55 per cent of the industry, and a representative from the government, which is the majority owner of public sector banks accounting for roughly 75 per cent of the industry, have tried to answer some of the critical questions relating to resources, capital, consolidation and scale.

The cover story too deals with the same subject in a different way. While Indian banks are far behind their global counterparts in terms of assets, capital and market capitalisation, they are comparable with the world's best on some of the efficiency parameters like return on assets, return on equity and so on.

They are minnows in terms of market capitalisation but the price-to-book value of some of the Indian banks is much higher than their global peers'. So the crying need is scale. The industry is fully aware of this and a few weak players in the private sector have already taken the plunge by merging with stronger compatriots.

The M&A wave has spilled over to the co-operative banking space too, thanks to the uncompromising stance of the Reserve Bank of India to put the co-operating banking system in order. A report on cooperative banking deals with this phenomenon.

While the consolidation phase has just started, innovation has already become the buzzword. Private and foreign bankers are not the only ones to believe that innovation is necessary to engage customers and build business. Even the normally staid public sector banks are going off the beaten track to protect their turf and grow. A case in point is the recent strategic alliance of three public sector banks.

The Banking Annual is also about celebrating success. The Best Banker award (decided on the basis of a poll among Business Standard's senior editors) goes to KV Kamath of ICICI Bank for being innovative and creating the retail market in the Indian financial space.

Enjoy this comprehensive snapshot of where the banking industry has arrived in its increasingly exciting journey.