Presentation on banking sector

needs consolidation
Presented by Pankaj singla

Introduction
Abankis afinancial institutionand afinancial

intermediarythat acceptsdepositsand channels

those deposits intolending activities, either
directly or throughcapital markets.

A bank connects customers that have capital

deficits to customers with capital surpluses.

Types of banks
Savings bank
Commercial banks
Industrial banks
Land development banks
National banks
Co-operative banks
Exchange banks
Consumer banks

Facilities by banks
Utility payments
Merchant banking
Factoring services
Mutual funds
Gift cheques
Feasibility reports
Demat account
Credit and debit cards
insurance

Adoption of banking technology

The IT revolution had a great impact in the indian

banking system.
The use of computers had led to introduction of
online banking in india.
The Indian banks were finding it difficult to
compete with the international banks in terms of
the customer service without the use of the
information technology and computers.

 In 1994, committee on technology issues relating

to payments system, cheque clearing and

securities settlement in the banking industry
(1994)[was set up.
Total numbers of ATMs installed in India by
various banks as on end March 2005 is 17,642.
The new private sector banks in India is having
the largest numbers of atm.

Consolidation
Consolidationoramalgamationis the act of

merging many things into one.

Inbusiness, it often refers to themergers and
acquisitions of many smallercompanies into much
larger ones.

Functions of Reserve Bank of

India
Bank of Issue - Under Section 22 of the

Reserve Bank of India Act, the Bank has the sole

right to issue bank notes of all denominations.

Banker to Government - The second important

function of the Reserve Bank of India is to act as

Government banker, agent and adviser.

Bankers' Bank and Lender of the Last Resort -

The Reserve Bank of India acts as the bankers'

bank. banks have been asked to keep cash
reserves equal to 3 per cent of their aggregate
deposit liabilities.

Controller of Credit - The Reserve Bank of

India is the controller of credit i.e. it has the

power to influence the volume of credit created
by banks in India.

Custodian of Foreign Reserves - The Reserve

Bank of India has the responsibility to maintain

the official rate of exchange.

Supervisory functions - In addition to its

traditional central banking functions, the Reserve

bank has certain non-monetary functions of the
nature of supervision of banks and promotion of
sound banking in India.

Consolidation: a need for the indian banking industry

Benefits of Consolidation
1.Growth-The loan toGDPratio for Indian banks
is about 30 percent which is very low in
comparison to banks in other emerging South East
Asian economies.
Consolidation leads to growth in business
prospects as well as reduces operating costs.
ICICI Bank Limiteds merger with Bank of
Madura is an example where the motive behind
consolidation was growth.

2. Universal banking model and integration of

financial services - Due to the flexibility
provided to banks by RBI in credit delivery, the
DFIs(Developmental Financial Institutions) which
were opened with the aim of improving allocation
efficiency of resources.
Example is idbis merger with IDBI bank ltd. In
2004.

3. Synergy benefits - Synergies lead to revenue

enhancement and cost reduction. Consolidation
helps to get a jumpstart by allowing banks to build
on an already established platform.
Oriental Bank of Commerces merger with Global
Trust Bank is an example where the motive behind
consolidation was synergy benefits.

4. Strategic benefits - Banks with complimentary

business interests can merge together to
strengthen their market position.
HDFC Banks merger with Centurion Bank of Punjab
is an example.
This merger enabled HDFC bank to build a strong
SME (strong and medium enterprises)

5. Ease of market entry - cash rich firms acquire

already established players to enter into new
markets. This provides them an already existing
platform on which they can build upon easily.

Standard Chartereds merger with ANZ Grindlays

is an example where the motive behind
consolidation was market entry.

6. Regulatory Intervention - RBI in certain cases

forces the merger of ill banks to safeguard the
interests of the depositors and to prevent
financial destabilization.

Challenges
People issues - The mergers of banks pose human

resource management problems. The cross cultural

integration is an important post merger issue to be
handled by the management of the two banks.

Technology integration - Integration of

technology platforms poses a stiff challenge as the

merging banks use different working platform and
are at different stages of technology
implementation.