India's banking industry will see a lot of mergers in the near future and emerge as the best in the world in 20 years, a senior banker said on Tuesday.
"We will see lot of consolidations in the banking sector. If we want to survive globally, then economies of scale will be an important factor," Punjab National Bank chairman S S Kohli said at a seminar organised by the Maharaja Agrasen Institute of Management Studies, in New Delhi on Tuesday.
He said small banks could not survive in an environment where the banking sector would be exposed to market risks seen in a global economy.
Speaking for the banking fraternity, he said, "Indian banks will emerge as the globally best in the next 20 years."
He said the retail boom in the country provided huge opportunity for banks to increase their credit growth.
Kohli said agriculture and small and medium enterprise segments provided banks with huge opportunities to expand their businesses, especially after the government set up a Rs 50,000 crore (Rs 500 billion) fund under Nabard for stepping up farm loans and another Rs 10,000 crore (Rs 100 billion) fund under Sidbi for loans to small companies.
He said the recent technology drive in public-sector banks and the higher provision for wiping out non-performing assets would make Indian banks stronger.
Net NPAs are slated to come down to 2 per cent this fiscal from 6-7 per cent in 2002-03, as most of the banks have been making 75-100 per cent provisioning for bad debts, the
PNB chief said.
Indian banks have shed 1,25,000 workers or 12.5 per cent of their workforce through voluntary retirement scheme during the last few years, said Kohli, former chairman of Indian Banks Association.
"The savings from employee cost after the VRS was utilised in investment in IT."
Soft interest rate regime also acted as "blessing in disguise" for banks as they could make higher provisions for NPAs from the treasury gains when interest rates declined, Kohli said.
Banks should adopt, he said, strong risk management policies to ensure sound financial health.
Kohli said he saw growing tendency for banks to go for 'universal banking'.
"Banks should not only meet the short term funding requirements, but also take the responsibility to meet the long term requirements of industry."
He also said there was a need to focus more on fee-based income rather than depending on interest income.
