Batting for further consolidation in public sector banking, the executives of top public sector banks (PSBs) said there should be at least two Indian banking entities among the top 20 global banks.
The growing needs of the country, which is eyeing to become a developed nation by 2047, make it imperative to have many large-size banks.
The state-owned banks with a healthy profile, marked by a comfortable capital base, robust asset quality and enhanced quality of operations, are best-placed to engage in further consolidation.
Banks are more confident to manage mergers and amalgamation on the back of effective consolidation in the PSB space that happened during the pandemic in 2020, the bankers said during a session ‘Does India need big banks’, moderated by Manojit Saha of Business Standard.
Ashwini Tewari, managing director, State Bank of India, the country’s largest lender, said: “PSB consolidation is a decision for the government to take. There is a case for large banks.
"There can be niche banks, which are sector or community oriented. India should have at least two banks in the Top 20 globally.”
Seconding SBI’s argument for larger banks, Asheesh Pandey, MD & CEO, Union Bank of India, said, “Banks need strong balance sheets to underwrite big projects.
"This coupled with the de-dollarisation trend will drive the need for big banks.”
Earlier, banks were dealing with projects with loans of Rs 800 crore-Rs 1,500 crore, and now they are underwriting projects with sizes in the region of Rs 8,000 crore-Rs 15,000 crore, he added.
Commenting on the need for big banks, panellist Rajneesh Karnatak, MD & CEO, Bank of India, pointed out, “The country has a different demography with rural and semi rural areas.
"There should be at least three to four large banks in the Top 100 globally in terms of total business, market capitalisation and asset size.”
The case for big banks, according to Debadatta Chand, MD & CEO, Bank of Baroda, is also due to their capacity to underwrite, ability to invest in technology and optimise branch network and resources.
The first wave of consolidation happened in the middle of the last decade when SBI’s associate banking entities merged with the parent.
Later, in 2019, Bank of Baroda took Vijaya Bank and Dena Bank into its fold.
This was followed by consolidation on a larger scale in 2020.
Bankers pointed out that it took the Indian economy 65 years to reach the $1 trillion mark.
From one trillion to two trillion, it took another seven years.
And the journey from two trillion to three trillion, took two years only.
Now, the government has articulated the aim of becoming ‘Viksit Bharat’ and to reach a $40 trillion mark by 2047.
With this, the scale of operations and the gross domestic product (GDP) growing in that manner, India definitely needs large banks, the bankers asserted.
On the need to globalise, Tewari said India requires big banks to contribute meaningfully to large Indian companies.
To do this, banks need to attain size, raise more capital and underwrite larger funding requirements.
Also, a large bank can spend on the latest technology.
In the digital age, technology spending is not a choice, it is a necessity.
Panellists said the cost to income and cost to asset ratio improves as banks become larger.
In India, this is between 1.5-2 per cent.
Globally, this has come down to one per cent or lower.
Also, the input costs are better optimised in large banks.
Integration of diverse systems as well as human resources (HR) becomes critical in a consolidation.
Tewari added that the large banks can attract, train and retain specialised talents in risk management, technology, and artificial intelligence.
Workforce and technology have to be mapped out carefully given multiple applications across merged banks, said Chand.
Bankers also emphasised sensitivity for cultural issues while dealing with mergers.
Asheesh Pandey, MD & CEO, Union Bank of India, pointed out that culture is key as it has to be harmonised, otherwise it (merger process) would be difficult.
Seconding Pandey’s view, Karnatak said that integration of people, process, and technology is important.
Asset quality is very good in India. It is not a challenge as far as bank consolidation is concerned, he added.
There was also emphasis on sensitivity in handling of systemic and HR issues.
Tewari said there has to be transparency and fairness on the HR side, so that everyone in the consolidated organisation feels that the process is transparent and fair.
Another big exercise that the banks have to go through is on the policy (rationale and road map) and the technology.
Now, technology is not that much of a challenge.
Earlier, the consolidations were happening based on the technology even if the platform was the same or not, the panel members added.
