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Banking the next big M&A hotspot?

india Updated: Mar 05, 2010 21:27 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times
Banking the next big M&A hotspot?

A flurry of consolidation initiatives is expected to take the country’s banking sector by storm, as top corporations jostle with each other to acquire running businesses rather than set up new networks through fresh licences that the authorities have proposed to hand out in the coming months.

Several non-banking finance companies (NBFCs) including those promoted by the Tata group, Anil Dhirubhai Ambani Group, A.V. Birla Group and the Bajaj Group are keen on entering the retail banking space.

Finance minister Pranab Mukherjee had said in his budget speech that the Reserve Bank of India (RBI) would be offering fresh banking licences.

Expectations of stringent norms that could make only companies with large capital adequacy eligible is also likely to trigger consolidation as size and scale become more important.

“Mergers and acquisition (M&A) activity could hot up, though a clear roadmap would emerge after the RBI issues the formal guidelines on licences,” a finance ministry official said on condition of anonymity.

Several business houses are reportedly in talks to buy south-based private sector banks.

Raman Aggarwal, co-chairman, Finance Industry Development Council — a self regulatory organisation for asset financing NBFCs — said the move would affect only a handful of NBFCs as the guidelines would be “extremely stringent.”

“Any new entity keen on entering the banking sector, would be required to meet with stringent obligations such as maintaining stipulated cash reserve ratio — the portion of deposits that banks are mandated to park with RBI — and the statutory liquidity ratio (the quantum of deposits banks need to maintain in the form of approved securities),” consulting firm KPMG said.

“Consolidation would be good for the banking sector,” said Sunil Chandiramani, national director (advisory business services), Ernst and Young.