Monday, January 11, 2010

Indian banks are mean competitors in global markets, putting their advantage – lower technology and labour costs – to good use.

So, what stops Indian banks to truly develop their global muscle, asks Deepak Patra

25th December or Christmas day in 2006 was special for Christalyn Sangary, President of a property management firm in Toronto, Canada. She was celebrating the day with her husband and five year old son Joshua at Film City, Mumbai and keeping them company was Bollywood heartthrob Shah Rukh Khan. “SRK definitely won the affection of our five year old son within minutes,” says Christalyn, adding that she was thankful to God and ICICI Bank Canada for making the beautiful experience possible. Yeah! Christalyn was actually the Grand Prize Winner of Meet and Greet Shah Rukh Khan, a contest hosted by ICICI Canada for all those who opened a chequing account with the bank during the contest months. In fact, the slate grey, thirteen storeyed skyscraper, jutting onto the Toronto skyline, which serves as headquarters for ICICI Canada, is really the hub of many such slick marketing ideas ever since its launch in December 2003. At first a niche bank, servicing just the Indo-Canadian community to a direct banking operation today and customers in every Canadian province, the bank boasts an asset base of C$6.4 billion (as of March 31, 2009).

ICICI is not the only Indian bank with global ambitions. Public sector bank, State Bank of India has also been an early starter in the direction. In fact, on and off, other big bosses of Indian banking industry – Punjab National Bank, Axis Bank, HDFC Bank or for that matter even banks like Andhra Bank, Bank of Baroda and Indian Overseas Bank – have shown some interest in making their presence felt in the global arena. But all those efforts have hardly been backed by consistent efforts; for the critic, they’ve only looked like well managed PR; while for the supporter, the ‘expansion’ moves have simply been attempts to make the shareholders back home happy. Excepting very few like SBI and ICICI, none of the other banks’ bottomlines gets a contribution even worth mentioning from their international operations. To that effect, and to their credit, in the case of SBI, this figure is about 8.6% (still less, but better).

And if one were to talk about going into foreign markets using the inorganic route, then apart from SBI and ICICI Bank – which have attempted a few acquisitions in Indonesia and Russia – none of the other banks have hit the news. A research report published by Accenture (India Goes Global) suggests that in all cross-boarder M&A activities involving Indian corporations between 1995 and 2006, the banking sector had a 2% share. Why this is very meagre can be seen by the fact that in other developed nations, the banking sector makes up a significant share of takeover deals. Definitely, one can argue that markets were on an upswing between 1995-2006 and therefore, with the global banks being valued sky high, it was not practical to invest in them.

But the situation has changed drastically since then. Today, many of the global banks (even after the revival that the market has witnessed in past few months) are valued at just 25-50% of their value in 2006-07. At this point, Indian banks have a huge opportunity. More so because they are loaded with huge reserves and cash balances, the traditional Indian tools to fund M&As. Moreover, capital adequacy ratio of most of the Indian banks is far better than that of global standards, which means they can actually afford to raise debt capital, if necessary, to fund any deal they take up.

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Source : IIPM Editorial, 2010.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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