Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Banks: Consolidation picking up? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 24, 2003

    Banks: Consolidation picking up?

    The re-rating of the Indian banking sector has happened due to a number of factors and one of them is the consolidation potential in the industry. Reports indicate that Corporation Bank, a leading public sector bank is looking to acquire stake in another leading private sector bank, UTI Bank. Those it is early days yet, we look at the benefits for both these banks if the deal goes through.

    Bank Year Merged with
    Times Bank 1999 HDFC Bank
    Bank of Madura 2000 ICICI Bank
    ICICI Ltd 2002 ICICI Bank
    Nedungadi Bank 2002 Punjab National Bank

    For Corporation Bank this seems more like a measure of investing its surplus funds. This is due to the fact that the bank has a capital adequacy ratio (CAR) of nearly 22% compared to the RBIís stipulated level of 9%. Moreover, Corporation Bank is likely to get a stake in a bank that has managed to grow its net earnings at a CAGR of 55% in the last five years.

    As far as UTI Bank is concerned, the preferential allotment of shares will enable it to raise capital which it very desperately needs. This is due to the fact that the CAR of UTI Bank is low at around 9.7% which is just above the stipulated 9% RBI Limit. UTI Bank has been very aggressive as far as advances are concerned and hence if the bank has to maintain the same rate of growth in its earnings it needs to grow at a fast rate. For this the bank needs better CAR so that it can grow its advances at a faster rate. By infusing more capital into UTI Bank, Corporation Bank may help ensure (to an extent) that these growth rates are maintained. So the deal if it happens, may turn out to be a win-win situation for both.

    At this stage any assumption on this particular deal is likely to be mere speculation, but the fact is that consolidation in the industry is a reality. Banks are increasingly finding that in order to survive the competition they have to create a larger reach across the country. Moreover, weaker banks that have not been performing well are likely to be soft targets for larger banks. A good example of this has been the recent merger of Nedungadi Bank with Punjab National Bank. Also, FDI investment in PSU banks is not allowed beyond 20% of total equity currently. There are expectations that this limit will be eased in the forthcoming budget. If this turns out to be true, we are likely to see increased investments in this sector and a part of these investments may find their way into mergers and acquisitions.



    Equitymaster requests your view! Post a comment on "Banks: Consolidation picking up?". Click here!


    More Views on News

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Axis Bank: Outside Watchlist Slippages a Big Worry (Quarterly Results Update - Detailed)

    Jul 31, 2017

    Almost 74% of the watchlist as provided by the bank of Rs 226 billion in FY16 has turned into non-performing assets.

    Should You Take SBI Chief's Advice and Load up on SBI Shares? (The 5 Minute Wrapup)

    Jul 6, 2017

    Does the stock score on the value versus price equation?

    AU Small Finance Bank Ltd. (IPO)

    Jun 27, 2017

    Should one subscribe to the IPO of AU Small Finance Bank Ltd?

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)