The year 2009 is when everyone would have expected some serious consolidation moves in the Indian banking sector, that’s the way the RBI had laid the ground rules. Rana Talwar's move may have triggered off this long overdue phase a bit earlier.
The HDFC bank-Centurion merger is a sensible one, albeit somewhat expensive for HDFC bank. However, good banking assets, in a market like India will hardly go cheap. It will be interesting to see which ones move next, and which of the bigger entities gobble them up.
ICICI is the country's second largest bank, so it only fits the "acquirer" mode. If we leave that out we have Indus Ind, DCB, Yes bank, Bank of Rajasthan, Kotak Mahindra bank and Axis bank. Indus Ind and Bank of Rajasthan are the most likely to be snapped up next as they have been courting larger entities anyway for some time. Centurion had much better pedigree so the deal got done at the first whiff of interest.
These two have issues of legacy, asset quality and pedigree so acquiring banks may be less generous with valuations and may even think hard before initiating merger talks. Axis is quite a strong private sector bank with a robust organic growth model so maybe it's not on sell mode. Uday Kotak is too much of an institution builder to consider selling or merging with a larger entity quite so early.
Yes bank fits the bill. Promoted by entrepreneurs Rana and Ashok Kapoor, they have a Centurion kind of profile. If the right fit comes along, I wouldn't be surprised if they took the bait. DCB fits the profile too except that the promoter entity is the Aga Khan trust, which makes it a tad difficult to predict. But do watch out for these deals as they will happen and before the global guys get a look in some of the strong local banks may steal a march on them, as HDFC just did.
The bigger wave of banking consolidation is actually required in the public sector. The finance minister speaks about the need for it every time he meets bankers but sadly these decisions are not quite as easy as Deepak Parekh and Rana Talwar meeting over coffee and shaking hands. The struggling PSU banks want bail outs but then the good banks back off. The slightly stronger ones resist a merger.
Else UCO, Allahabad, Dena, IOB etc should have merged with a BoB, Canara, Vijaya long back. Hopefully, these too will happen, not before long. It's like wickets in a cricket match, one falls and suddenly three go quickly.
(Udayan Mukherjee is an Executive Editor, CNBC-TV18)