The Indian banking sector is in a phase of transition and both private as well as public sector banks are leading the charge. We at Equitymaster believe that consolidation may be the long-term trend that is likely to emerge in the sector. This is more likely as banking sector regulations are ease and government's role in the banking sector cease to exist, spurring consolidation. In this light (of consolidation and larger MNC role in the Indian banking sector) we look at a bank that has reemerged from a slump to show immense potential for the future.
The bank we are referring to is ING Vysya Bank. It is one of the oldest private sector banks in the country with a significant exposure to south India, in which the ING group of the Netherlands has taken up a 44% stake. ING's participation in the bank's management has brought about a turnaround of sorts in its functioning and, consequently, ING Vysya Bank is emerging as one of the fast growing and better managed private sector banks in the country.
As mentioned above, ING's involvement in the bank's management is the main reason for its improved performance over the last two years. ING Group is one of the largest universal banks in the world with an asset size of close to US$ 7 trn. The acquisition of Vysya Bank is part of ING Group's strategy for the Indian subcontinent. For ING Vysya Bank, this has meant strong management and functional expertise that ING group will be able to impart to it. ING Group's overall strategy for India is to develop a greenfield presence in the country. This indicates that the parent may, at a latter stage, further increase its investments in the bank.
While the prospects look promising, there are teething problems like regional exposure that the bank needs to tide over to realise its potential. Compared to the larger and the better-managed new private sector banks, the geographical and numeric reach of ING Vysya Bank is limited to a large extent to the southern region. To outgrow this handicap, the bank will have to grow aggressively. This would entail higher capital expenditure and would depend on the bank's ability to widen its network to profitable centers and also to areas, which are yet to be tapped by its peers.
We have initiated research coverage of ING Vyasa Bank, and to know more about the bank and its prospects, please read our new research report on the same.
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