One year back, as the financial world centred on Wall Street went into crisis, the trigger being the collapse of Lehman Brothers. Indian financial firms had a real chance to get in the big league buying up some of the broken pieces. But that never happened. This is the biggest lesson from the crisis for India.
The closest any Indian firm got was Religare. But on Monday morning AIG Investments?the investment advisory and asset management arm of AIG?was bought instead by Hong Kong-based Pacific Century Group of Richard Li for $500 million. Till last week the consortium of Religare with Macquarie Bank of Australia was seen as a front runner for the buy out. The prize was not a small one. An AIG statement says, the units being sold to Li operate in some 32 countries and manage approximately $88.7 billion in investments belonging to institutional and retail clients. To its credit, Religare fought hard.
This is not an issue of patriotism. Size is a crucial change agent in the world of finance and that takes time to build. The collapse of many of the giants in the tumultuous two weeks of September 2008, opened up a sliver of opportunity for banks from Asia to make up that deficit.
The strongest challenge was expected to come from China and there was possibility for India too. But that did not happen despite those two weeks in the second half of September 2008 being the best time to learn the right lessons. So one year down the line, as the G-20 sherpas deliberate the need for rolling back the fiscal and monetary measures to take on the impact of the game changer days, its time to mull over the loss of opportunity for the banks here.
In a way that loss of opportunity is the biggest one for the Indian financial sector in the post Lehman world. In a bidding war it is quite possible that the Indian entities could have come a cropper. But none of the entities even cared to put in a bid for any of the stakes on offer. There are several reasons why that did not happen and the reasons for that do not lie with RBI.
Since the freezing of the global money market had crippled the fund raising capacity of the private sector banks, it was obviously the public sector banks which were expected to be there, honourable exceptions like Religare notwithstanding. Of the total assets of the financial sector, the public sector banks and insurance companies are the dominant force in India.
A decision to pick up a stake in one of the assets being sold does not need a nod from RBI, on substantive issues. Instead it is the government which could influence opinion. Yet there is no evidence that either the government nominees on board of the Indian institutions or others raised any discussions on such offers.
The arguments of fire sale does not hold good as one year down the line, these assets are turning out to be good bargains. Actually this is one of the big lessons from the financial meltdown we did not learn.
The bosses of the companies found themselves so snug in the lack of competition in the sector they found no reason to bring it in. This is more than surprising; it is a glaring absence of understanding of the new dynamics of the world of finance. Because in the wake of the September collapse, it became evident that India was as much tied to the world finance market as any other entity. The seizure of the global money market immediately pushed up demand for funds from the RBI from a daily average hovering at Rs 2,000 crore to a high of Rs 90,000 crore, that it was hard put to meet.
So it was evident that there would not be a return to a business as usual scenario. It was in circumstances like these, post 1997 that the manufacturing sector from India went on its global big ticket acquisition.
The ramifications of the lack of push could come home soon. Bank chiefs are ready to explain when they are not quoted that financial sector regulators abroad, are pretty reluctant to hand out licences for new branches. An acquisition in the bigger economies could have solved some of these problems for organic growth that the Indian banks face.
Since this is a problem all the big public sector banks have faced abroad, they therefore should have been much more alive to the possibilities opened up by the bargain sales. The lack of movement could instead come back to haunt once the recovery proceeds, as the Indian financial institutions will still be picking up size after the big boys are ready. In the global pecking order of banks based on the size of assets and the strength of their Tier I capital, State Bank of India ranks at the 64th position and ICICI bank ranks 81st. PNB, HDFC Bank and Bank of India are way behind at 239, 242 and 263 respectively as per the rankings compiled by the Financial Times.
Just a postscript: The recently released, Global Finance, in its latest ranking of the top 50 safest banks in the world does not include any Indian entity.
?subhomoy.bhattacharjee@expressindia.com
