Bhatt: One world

Mumbai, Sept. 26: Banks in India will need to amalgamate or consolidate if they are to stand any chance of squaring up to face competition from foreign banks which are expected to invade the country in 2009, says State Bank of India chairman .P. Bhatt.

Bhatt said India will witness an “avalanche of foreign banks” in 2009 as the government prepares to comply with its commitment to the World Trade Organisation (WTO) to open up its financial sector.

More demands

The US and the European Union have already been ratcheting up pressure on India to kick start the process of financial sector reforms sooner.

“We already know that RBI’s roadmap for the presence of foreign banks in India envisages increased foreign bank participation from April 2009. This will place increasing demands on our banks,” Bhatt told participants at a banking conference organised by Ficci and the Indian Banks’ Association (IBA) here today.

Balancing act

The looming deadline will put pressure on the banking industry to bulk up its balancesheets through amalgamations, Bhatt said adding that the recent move by Oriental Bank of Commerce, Indian Bank and Corporation Bank to share resources was the first step in that direction.

“They are calling it a virtual merger. They have actually hijacked a term that (my predecessor) A.K. Purwar used to describe the planned merger of the associate banks within the SBI group with the parent bank,” he said. Bhatt didn’t say whether he would now push for the merger — but his tone clearly indicated that the looming threat would force him to.

Odds are high

The statistics are clearly stacked against Indian banks. “The biggest Indian bank — State Bank of India — is ranked 107th in the world in terms of balancesheet size. India’s entire banking industry is smaller than the world’s 10th largest bank,” Bhatt said, adding that amalgamation of two or more mutually complementary banks was the quickest way to at least partially overcome the problem of size.

Caution call

Bhatt cautioned that mergers might not be the real palliative as several mergers had failed in the past. But he cited the example of Wachovia Corporation, which has clambered to the fourth position in the US banking industry charts on the back of 72 mergers over the past 30 years.

“Time is running out. Banks in the public sector have been losing market share over the past few years. The slide can become a torrent once competition becomes multinational,” Bhatt said.