European banks on prowl for acquisitions in India

Many banks are sitting on surplus capital and liquidity and are looking for potential acquisitions to boost shareholder value.

Flush with surplus capital and liquidity, European banks are increasingly looking for potential acquisition targets in India among other emerging economies, which are densely populated but mostly underbanked markets, leading global rating agency Fitch Ratings has said.

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"Many banks are sitting on surplus capital and liquidity and are looking for potential acquisitions to boost shareholder value," Fitch's Financial Institutions Group Managing Director Alison Le Bras said in a special report on European banking sector.

Besides the pan-European deals, major banks are also increasingly looking for their external growth towards emerging markets like India, China, Turkey, Russia and Ukraine, the rating agency said.

While operating conditions in some of these countries remain difficult, the huge lending potential makes these future acquisitions attractive to major European banks, it added.

Within Western Europe, Italy is the most attractive market for potential acquisition opportunities and there remain few obvious significant takeover targets in other EU markets, Fitch said.

Although more major pan-European deals cannot be ruled out in 2006 and beyond, major banks are thus increasingly looking further afield for external growth, particularly towards more densely populated, underbanked emerging markets, it added.

Fitch further pointed out that organic growth within mature markets would be a key challenge for major European banks, as the rapid pace of loan growth experienced over the past two years is unsustainable and margins on traditional loan business remain under intense pressure.