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

Date of merger

Acquirer bank

Target bank

Assets of
target bank as
% of acquiring
banks 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

102

October 2006

IDBI

United Western Bank

230

September 2006

Federal Bank

Ganesh Bank of Kurundwad

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

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)

BNP Paribas

2,965

Royal Bank of Scotland Group

2.750

Crdit Agricole

2,441

HSBC Holdings

Top 200

No. of Banks

USA

27

Japan

18

Germany

15

China

13

2,364

Spain

13

Barclays

2,235

India

Bank of America Corp

2,223

Deutsche Bank

2,162

USA

183

JP Morgan Chase

2,032

Japan

102

Mitsubishi UFJ Financial Group

2,026

China

84

10

Citigroup

1,857

Germany

72

68

State Bank of India

279

Spain

41

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

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

Page 5

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

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

Page 6

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

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