The Basel-II norms, to be made operational from April 2007, will entail huge capital for banks as a cushion to fall back against the perceived operational risks and also for funding their future expansion programmes. While most Indian banks are still under-prepared and will fall grossly short of new capital requirements once the new norms come into force, banks that will be affected the most are the old generation, region-specific, private banks, due to their depleted fund base. In the absence of a pan-Indian network of branches, specific region business concepts do not always present enou-gh business opportunities to remain profitable.
The management of these banks can, therefore, hardly be blamed for the losses. Mergers are increasingly believed to be the most viable option for banks sustenance. Besides shoring their capital base, there are several other accompanying benefits, like enhancing geographical presence, cutting costs and increasing the balance sheet size to meet competition.