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Takeaways from Banking conference-II
Apr 25, 2008

In the previous article we discussed the evolution of the banking sector and the major players in the sector in the past decade and in this article we shall throw some light on the future of the sector in the next decade. With the gradual reduction of government ownership in the PSU banking entities and their integration with the private sector players, the Indian banking sector is expected to see the emergence of one or two large sized entities that may feature amongst the top 20 globally in the next decade. This belief is supported by the fact of the top 20 global banks in the last decade only a few have remained now and several smaller entities are in the reckoning due to their superior growth strategies.

Consistent in top 20
Market cap* US$ bn
Bank of America 195.9
HSBC 176.7
JP Morgan Chase 159.6
Citibank 140.6
* At the end of Jan 2008
New entrants in top 20
Market cap* US$ bn
ICBC 277.5
Banco Santander 109.8
Unicredit 97.5
Sberbank 77.7
* At the end of Jan 2008

Crystal gazing
McKinsey suggested eight global trends that will be seen in the banking sector globally by 2020.

  1. Age of capital markets – investment banking and asset management to grow massively.

  2. Age of capital markets – Demographic shifts in developing markets to transform asset management

  3. Age of innovation – Technology to enable new products and delivery models

  4. Age of customer value – Banks become more customer centric

  5. Age of risk and regulation – Increased harmonization to create level playing field

  6. Age of global platforms – Emergence of more global banks

  7. Age of consolidation– Emergence of mega banks will foster new banking models

  8. Age of re-alignment– Asian banks to grow faster, but European banks to hold largest shares.

McKinsey also projected some alternative scenarios that the sector could witness, namely -

  • Trillion dollar super banks
    These entities may emerge with massive consolidation and superior regulation
    OR

  • Asset light models
    These entities may emerge due to the presence of online brokerages and payment specialists in banking
    OR

  • Banking by non-banks
    These entities may emerge with retailers and Internet companies offering banking services.

Concerns

  1. Lack of urgency on the part of banks to increase scalability, seize opportunities and consolidate may lead to loss of prospects;

  2. Lack of adequate financial infrastructure may hinder growth in niche areas;

  3. The development of a sophisticated debt capital market may leave Indian banks deprived of significant opportunities; and

  4. If the domestic banks do not cater to the growing Indian corporates with the desired service quality, then their foreign counterparts may cannibalise their share.

The conference offered insights not just in terms of the future of the banking sector per se but also in terms of the vision of the industry leaders with regard to the emergence of a financial hub in India and the evolution of the Indian economy.

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