At around $780 billion, India’s GDP (gross domestic product) is comparable to that of South Korea, yet Korean banks have seven times more banking assets than Indian banks. With assets of around Rs 4,93,000 crore, State Bank of India (SBI) is the country’s largest bank, yet it is only ranked 84 in the world, according to The Banker; the next biggest is ICICI Bank, which is half the size of SBI and ranked around 200 globally.

Two things become clear. One, India is still an ‘unbanked’ country. Two, by global standards, even the biggest of Indian banks are minnows in a business where size means clout and where geographical boundaries are blurring. Even by Indian standards, most of the banking sector is disadvantaged by size: the top 25 banks — of which, 18 are owned by the government — account for about 85 per cent of banking assets.

Such fragmentation is a matter of concern, more so approaching 2009 — the date set by the Reserve Bank of India (RBI) to relax operational norms for foreign banks. The sweep, nature and timeline of those changes haven’t been articulated yet, but as and when foreign banks are allowed unrestricted access, or even something approaching that, they could muscle out the smaller banks with their large capital base.

For instance, total assets of HSBC Holdings, the biggest global bank with a presence in India, are about thrice the assets of all Indian banks put together. Says Bhaskar Ghosh, managing director, IndusInd Bank: “Consolidation is required. No Indian bank can grow organically to reach a significant size, so it’s a good idea to merge and form some international-sized banks.” A parallel is the experience of non-banking finance companies (NBFCs), who, unable to compete with banks on costs and marketing, lost their business of home loans and car loans to them.

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