Industry structure: M&A in
Indian Banking
Ashvin Parekh, Partner & National leader –
Global Financial Services
3 December 2010
Regulatory Framework
Banking companies (Acquisition & Transfer of Undertakings) act 1970
Section 9 empowers the govt. to make the scheme to carry out the following:
►
Capital structure of corresponding new bank
►
Constitute the board of directors
►
Reconstitution of a new bank into two or more corporations or amalgamation of any new bank
with any other new bank
Companies Act 1956
►
Approval of the board of directors of individual companies for the draft proposal
►
Application in High Court
►
Approval of shareholders by 75% majority
►
Sanction by the High Court
►
Filing of the court order with the Registrar of Companies
RBI – Guidelines for merger/ amalgamation of private sector banks
►
Decision of merger has to be approved by 2/3rd of the total Board of the respective companies.
Applicable to PSU banks also.
Amalgamation between two banking companies
►
Approval by shareholders with 2/3 majority
►
After approval the scheme should be submitted to RBI
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Industry Structure: M&A in Indian Banking
Acquisitions over the last decade
Date of merger
Acquirer bank
Target bank
Assets of
target bank as
% of acquiring
bank’s assets
Number of
branches
of target
bank
0.05
463
August 2010
ICICI Bank
Bank of Rajasthan
February 2008
HDFC Bank
Centurion Bank of Punjab
20
394
August 2007
Centurion Bank of Punjab
Lord Krishna Bank
11
110
April 2007
ICICI Bank
Sangli Bank
0.5
190
March 2007
Indian Overseas Bank
Bharat Overseas Bank
6
102
October 2006
IDBI
United Western Bank
8
230
September 2006
Federal Bank
Ganesh Bank of Kurundwad
1
32
October 2005
Centurion Bank
Bank of Punjab
106
136
August 2004
Oriental Bank of Commerce
Global Trust Bank
17
104
February 2003
Punjab National Bank
Nedungadi Bank
2
173
March 2001
ICICI Bank
Bank of Madura
36
350
February 2000
HDFC Bank
Times Bank
75
39
Need to let M&As be business driven within broad regulatory framework
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Industry Structure: M&A in Indian Banking
Global comparison (1/2)
Rank
Bank
Total Assets ($bn)
1
BNP Paribas
2,965
2
Royal Bank of Scotland Group
2.750
Top 200
No. of Banks
USA
27
Japan
18
Germany
15
China
13
3
Crédit Agricole
2,441
4
HSBC Holdings
2,364
Spain
13
5
Barclays
2,235
India
3
6
Bank of America Corp
2,223
7
Deutsche Bank
2,162
USA
183
8
JP Morgan Chase
2,032
Japan
102
9
Mitsubishi UFJ Financial Group
2,026
China
84
10
Citigroup
1,857
Germany
72
Spain
41
68
State Bank of India
279
Switzerland
37
111
ICICI Bank
103
India
31
Source: The Banker – Top 1000 World Banks 2010
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Industry Structure: M&A in Indian Banking
Top 1000
No. of Banks
Global comparison (1/2)
USA*
UK*
India
Commercial Banks
6,622
350
232#
Savings institutions
1,138
-
-
Branches
98,913
15,000
69,160##
Total loans ($ bn)
7,389
5,953
765**
Total assets ($ bn)
13,383
4,137
1,135
Total deposits ($ bn)
7,738
3,870
1,053**
Population/ branch
3,136
4,156
16,962
Source: FDIC (USA), Bank of England, Financial Service Authority, RBI
*As on 31 October 2010; **As on 30 September 2010
# All scheduled banks (77 SCB, 86 RRBs, 69 Co-operative)
## Only SCB branches
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Indian banks lack size with only 1 featuring in the top 100 and 3 in top 200 globally
Two different approaches
► USA large number of banks for large coverage
► UK smaller number of banks (153 incorporated in UK, 328 deposit taking)
Population/ branch very high
Industry Structure: M&A in Indian Banking
Projected growth over next 5 years
Advances (Rs.crs)
8,344,587
3,497,054
FY10
►
►
►
FY15
Estimated Capital Requirement in 2015
Rs.(’000 crs)
USD bn
PSU banks
300-350
65-76
Private banks
125-150
27-32
Foreign banks
42-46
9-10
Total
467-546
101-118
Source: Ernst & Young Research estimates
Strong projected economic growth
Banks advances to grow at a CAGR of 20%, to become 2.4 times the
current size by 2015
Estimates do not factor in requirements on account of financial inclusion
thrust
Need for “Mega Banks” to bring in capital and scale
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Industry Structure: M&A in Indian Banking
Industry structure
►
Mega
banks
►
Medium sized
banks
►
Smaller banks
►
M&As essential for creation of Mega
banks
M&As among mid and smaller sized
banks will drive efficiency and growth
Mega banks will be able to support
industry in global expansion
Regulatory framework should allow
for inorganic growth especially
among private and foreign banks
Industry structure will help alignment of customer segments and services
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Industry Structure: M&A in Indian Banking
M&As in banking – lacking regulatory and
legal framework
Public sector
► Natural regulatory path not available
► Who will initiate the process? Banks themselves or the govt.
► Labour/ human resource concern; unions opposed to the move
Private sector
► Regulator driven
Foreign banks
► Regulatory restrictions
Reforms needed in M&A regulatory structure
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Industry Structure: M&A in Indian Banking
Thank you