Docstoc

Ashvin_Parekh

Document Sample
Ashvin_Parekh Powered By Docstoc
					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



Page 2                       Industry Structure: M&A in Indian Banking
Acquisitions over the last decade

                                                                                  Assets of     Number of
                                                                               target bank as   branches
 Date of merger          Acquirer bank                        Target bank
                                                                               % of acquiring    of target
                                                                               bank’s assets       bank
 August 2010      ICICI Bank                        Bank of Rajasthan               0.05           463
 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

Page 3                         Industry Structure: M&A in Indian Banking
Global comparison (1/2)

 Rank       Bank                                     Total Assets ($bn)         Top 200       No. of Banks

 1          BNP Paribas                                        2,965            USA                27
                                                                                Japan              18
 2          Royal Bank of Scotland Group                       2.750
                                                                                Germany            15
 3          Crédit Agricole                                    2,441
                                                                                China              13
 4          HSBC Holdings                                      2,364            Spain              13
 5          Barclays                                           2,235            India               3

 6          Bank of America Corp                               2,223
                                                                                Top 1000      No. of Banks
 7          Deutsche Bank                                      2,162            USA                183
 8          JP Morgan Chase                                    2,032            Japan              102
 9          Mitsubishi UFJ Financial Group                     2,026            China              84
                                                                                Germany            72
 10         Citigroup                                          1,857
                                                                                Spain              41
 68         State Bank of India                                 279
                                                                                Switzerland        37
 111        ICICI Bank                                          103             India              31
 Source: The Banker – Top 1000 World Banks 2010


Page 4                              Industry Structure: M&A in Indian Banking
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



 ►       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

Page 5                             Industry Structure: M&A in Indian Banking
Projected growth over next 5 years
                  Advances (Rs.crs)
                                                                  Estimated Capital Requirement in 2015
                                        8,344,587
                                                                                      Rs.(’000 crs)       USD bn

                                                                PSU banks             300-350             65-76

                                                                Private banks         125-150             27-32
          3,497,054

                                                                Foreign banks         42-46               9-10

                                                                Total                 467-546             101-118

           FY10                           FY15                 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

Page 6                       Industry Structure: M&A in Indian Banking
Industry structure


                                              ►    M&As essential for creation of Mega
                                                   banks
                 Mega                         ►    M&As among mid and smaller sized
                 banks                             banks will drive efficiency and growth
              Medium sized
                                              ►    Mega banks will be able to support
                 banks
                                                   industry in global expansion
              Smaller banks                   ►    Regulatory framework should allow
                                                   for inorganic growth especially
                                                   among private and foreign banks




         Industry structure will help alignment of customer segments and services

Page 7                    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

Page 8                Industry Structure: M&A in Indian Banking
Thank you

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:3
posted:11/6/2012
language:Unknown
pages:9