The entry of new players is likely to trigger consolidation among private sector banks with the government's recent move to issue new banking licences expected to set off a string of mergers and acquisitions.
Parliament last week passed the Banking Laws (Amendment) Bill thereby clearing the decks for the entry of new banks in the country. At present, there are total 20 private banks operating in India having close to 13,400 branches, mainly in urban areas.
“The issuance of new bank licences may lead to mergers and acquisitions in the banking sector with few mid and small size private sector banks becoming acquisition targets,” said Kajal Gandhi, banking analyst, ICICI Securities. “However, it may not be easy as these banks are regional and integration may be tough.”
Private banks’ total deposits stood at Rs.1,174,587 crore at the end of March 2012 while advances by them stood at around Rs.966,418 crore.
"We think there is a high possibility that many of the new banks could consider acquiring older smaller banks with large distribution networks," said Rajeev Varma, research analyst, DSP Merrill Lynch India.
In the draft guidelines for licencing of new banks for new entrants in banking sector, the Reserve Bank has mandated to open at least 25% of the branches in un-banked rural centres.
The last acquisition in the private space was in 2010 when ICICI Bank, India's largest bank, had acquired Bank of Rajasthan.