Banking Annual: An annual report on a companys or other organisations activities during the last financial year, and accounts covering this period.
Consolidation Ahead
This year’s Banking Annual comes at a time of great change in the banking industry. Banks have had an easy time in the last few years, when steadily falling interest rates ensured that all bankers had to do was park their money in government securities and book the treasury profits that fell in their laps. Sadly, bond yields have moved up sharply this financial year, and banks will have to go back to the hard work of making money on their loan books. Windfall treasury profits had also enabled banks to make provisions for and write off their non-performing assets (NPAs), and bank balance sheets are now much stronger. But going forward, the turn in the business cycle could on the one hand add NPAs, while on the other banks would have less leeway to make provisions.
With the corporate sector looking to expand capacity after a long investment drought, credit growth is set to zoom. Moreover, as the loan book increases, banks will also need more capital, and they will have to access the capital markets. Also looming over the landscape is the brooding presence of Basle-II, which threatens to separate the men from the boys in the banking industry. This change in the business environment for banks is conducive to mergers and amalgamations, as banks try to squeeze out value through economies of scale and scope. Perhaps more importantly, banking consolidation has received the blessings of the government, which owns three-fourths of the banking industry in the country. It’s logical, therefore, for banking consolidation to be the theme for this year’s Banking Annual, and the round table discussion gets together the country’s top bankers to explore the pros and cons of bank consolidation and how best to take the process forward.
The cover story too is on consolidation while we also take a look at the critical role played by information technology in mergers and acquisitions. This year too, the BS Annual ranking proves that public sector banks are far from the inefficient, stodgy stereotypes they are perceived to be. That’s why both the Best Bank of the Year, Vijaya Bank, and the Best Banker of the Year (decided on the basis of a poll among Business Standard’s senior editors), Oriental Bank of Commerce chairman B D Narang, are from the public sector. The message from the rankings also seems to be that size is by no means everything in banking, and there is plenty of scope for smaller players. Kotak Mahindra Bank, for example, tops our productivity and growth charts, Bank of America is seen to be the safest, Vijaya Bank tops in profitability, and HDFC Bank is the most efficient. But it’s not just the successes that we talk about – this year’s Annual also has an article on the weak underbelly of the banking system: co-operative banks. And last but not least, we offer our thoughts on the topic du jour – how to cope with rising interest rates.
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