In todays world, banking structures are important and size does matter howsoever beautiful small may be. Consolidation is an inevitable process as banks seek to reap economies of size. Globally, in the top 1,000 list, only 20 Indian banks feature. And in the top 200, only one. Further, even smaller countries like Taiwan have banks that are larger than the largest bank in India. Clearly, there is need for us to pause and seriously think this issue out.
Competition and profitability would put pressure on banks to reach a critical mass to succeed in business. Further, the pressure of capital would tend to surround the management of banks, which, in turn, would require enough clout to access markets. As is true, only the best, or largest would survive. Bank mergers would be the rule rather than the exception in times to come and there is a need for banks to check their premises before embarking on their future plans. There are synergies to be leveraged through consolidation where factors such as size, spread, technology, human resources and capital can be reconciled.
We could hence think of a situation where we have 4-5 global players which are really large, a handful of regional banks which will gradually merge and some other niche players to serve limited markets.
The author is chairman, Indian Banks Association & CMD, Union Bank of India