MERGER MANIA V

BY S.SRINIVASAN PRESIDENT

NATIONAL UNION OF BANK EMPLOYEES

(NUBE)

No Amount of Consolidation Will Give Indian Banks A Global Size

If we look at the world's 10 largest banks, the comparison becomes even more glaring. Last year, Citigroup's, the world's biggest banking conglomerate, Tier I capital was $74 billion. Its asset base was $1,484 billion. Each of the banks in the global top 10 list - JP Morgan Chase & Co, HSBC Holding, Bank of America, Credit Agricole, Royal Bank of Scotland, Mitsubishi Tokyo, HBOS and BNP Paribas - has a higher capital and asset base than the entire Indian banking industry. Last year, BNP Paribas, which has the lowest capital base among the global top 10, had a Tier I capital of $35.7 billion, marginally higher than the Indian banking industry's collective Tier I capital of $35.28 billion. Similarly, HBOS, which has the lowest asset base among the global top 10 banks, is almost one-and-half times bigger than the total assets of the Indian banking industry. But this also means that no amount of consolidation will give Indian banks a global size in the foreseeable future.

World's Largest Banks 2012

The list below shows the largest banks in the world based on market capitalization as of January 20, 2012. Industrial & Commercial Bank of China (ICBC) is the largest bank in the world by market capitalization value. Chinese banks occupy the top positions. The Peoples Republic now has 4 of the top 7 banks, including the top 2.

Rank 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

Bank Industrial & Commercial Bank of China (ICBC) China Construction Bank Wells Fargo & Co HSBC Holdings Agricultural Bank of China JP Morgan Chase Bank of China Itau Unibanco Citigroup Commonwealth Royal Bank Canada Bank of America Toronto-Dominion Bank Banco Santander Westpac Mitsubishi UFJ Financial Banco Bradesco Sberbank of Russia ANZ Banking Bank of Nova Scotia Standard Chartered National Australia Bank US Bancorp

Country China China US UK China US China Brazil US Australia Canada US Canada Spain Australia Japan Brazil Russia Australia Canada UK Australia US

Market cap ($b, 20/1/2012) 240.95 195.85 160.72 150.90 141.73 140.95 128.80 88.17 86.67 82.62 76.56 71.77 70.53 67.32 65.77 64.25 63.91 59.36 58.48 58.16 57.68 56.04 54.85

Rank 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47.

Bank BNP Paribas Goldman Sachs Group UBS Bank of Communications China Merchants Bank Sumitomo Mitsui Financial BBVA Banco do Brasil Barclays Deutsche Bank Bank of Montreal Mizuho Financial Group Morgan Stanley Banco Santander (Brasil) Lloyds Banking Group Nordea Bank China Citic Bank PNC Financial Services Credit Suisse Group Canadian Imperial Bank of Commerce (CIBC) Intesa Sanpaolo BOC Hong Kong Shanghai Pudong Development Bank Bank of New York

Country France US Switzerland China China Japan Spain Brazil UK Germany Canada Japan US Brazil UK Sweden China US Switzerland Canada Italy Hong Kong China US

Market cap ($b, 20/1/2012) 54.21 53.53 52.00 48.11 45.15 43.62 42.98 42.19 42.07 39.17 37.93 35.82 35.49 34.97 34.76 33.57 31.40 31.37 31.29 30.76 29.00 28.13 27.76 25.80

Rank

Bank Mellon

Country

Market cap ($b, 20/1/2012) 25.17 24.49 24.48

48. 49. 50.

Royal Bank of Scotland Hang Seng Bank State Bank of India

UK Hong Kong India

Top Banks in the World in terms of total assets

Below is a list of the largest banks in the world as of December 31, 2011. The top 10 banks have about $24.7 trillion in combined assets. Two of the Top 5 largest banks are Japanese institutions. Deutsche Bank is currently the largest bank in the world in terms of total assets. The Bank employs over 100,000 people and serves over 20 million customers through a network of about 3,100 branches worldwide. With a market share of 15.6%, Deutsche Bank is also the largest currency trader in the world. Mitsubishi UFJ Financial Group (MUFG) is the second largest bank in the world by assets. The company's main subsidiaries include: Bank of TokyoMitsubishi UFJ, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities and UnionBanCal Corporation. HSBC Holdings is the third largest global financial institution with about 90 million customers worldwide.

Rank 1 2 3 4 5 6 7 8 9 Deutsche Bank

Bank

Country Germany Japan UK France Japan France UK UK

Total Assets ($b) 2,802.71 2,741.52 2,555.58 2,545.34 2,542.77 2,455.59 2,434.24 2,430.74 2,342.66

Date 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011

Mitsubishi UFJ Financial Group HSBC Holdings BNP Paribas Japan Post Bank Crdit Agricole Group Barclays PLC Royal Bank of Scotland Group

Industrial & Commercial Bank of China China

Rank 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

Bank JPMorgan Chase & Co. Bank of America Mizuho Financial Group China Construction Bank Bank of China Citigroup Inc Agricultural Bank of China Sumitomo Mitsui Financial Group ING Group Santander Group Societe Generale UBS Lloyds Banking Group Groupe BPCE Wells Fargo UniCredit S.p.A. Credit Suisse Group China Development Bank Rabobank Group Norinchukin Bank Nordea Goldman Sachs Group Commerzbank Intesa Sanpaolo BBVA

Country USA USA Japan China China USA China Japan Netherlands Spain France Switzerland UK France USA Italy Switzerland China Netherlands Japan Sweden USA Germany Italy Spain

Total Assets ($b) 2,265.79 2,129.05 2,098.18 1,948.66 1,876.98 1,874.91 1,852.79 1,805.09 1,656.74 1,620.92 1,530.09 1,510.95 1,508.86 1,473.88 1,313.87 1,200.31 1,117.02 992.002 947.618 927.620 927.588 923.225 857.132 827.889 774.097

Date 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011

Rank 35 36 37 38 39 40 41 42 43 44 45

Bank National Australia Bank Royal Bank of Canada Bank of Communications Commonwealth Bank of Australia Toronto-Dominion Bank Westpac Banking Corporation Natixis KfW Standard Chartered Danske Bank Group Bank of Nova Scotia

Country Australia Canada China Australia Canada Australia France Germany UK Denmark Canada

Total Assets ($b) 772.699 735.665 731.618 716.693 671.717 667.632 657.564 640.841 599.070 596.785 562.983

Date 31/12/2011 31/10/2011 31/12/2011 31/12/2011 31/10/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/12/2011 31/10/2011

Note: The exchange rate on December 30, 2011, has been used for translation.

Top Banks in the World, Q2 2011

The following are the largest and best banks in the world in terms of total assets. The top 10 banks have over $24.4 trillion in combined assets and top 50 banks about $67 trillion. Three of the Top 7 largest banks are UK institutions. For the third year in a row, BNP Paribas is the largest bank in the world. In 2008, it was the fourth after Royal Bank of Scotland, Barclays and Deutsche Bank. BNP Paribas's four domestic markets are France, Italy, Belgium and Luxembourg. The Bank operates in more than 80 countries and employs over 205,000 people. Rank 1 2 3 4 BNP Paribas HSBC Holdings Deutsche Bank Mitsubishi UFJ Financial Group Bank Country France UK Germany Japan Total Assets ($b) 2,792.10 2,690.90 2,681.30 2,479.50 Date 30/06/2011 30/06/2011 30/06/2011 30/03/2011

Rank 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Barclays PLC Japan Post Bank

Bank

Country UK Japan UK China US US France US Japan China Netherlands Spain China China Japan France UK France Switzerland Italy US Switzerland Germany Netherlands Italy Sweden Japan US

Total Assets ($b) 2,395.30 2,325.77 2,319.90 2,304.40 2,264.40 2,246.80 2,236.80 1,956.60 1,942.60 1,818.40 1,798.60 1,785.80 1,776.47 1,773.11 1,652.82 1,590.72 1,570.59 1,532.53 1,469.46 1,331.88 1,259.73 1,160.72 991.085 963.910 934.576 859.851 839.80 830.747

Date 30/06/2011 30/03/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/03/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 30/06/2011 31/03/2011 30/06/2011

Royal Bank of Scotland Group Industrial & Commercial Bank of China Bank of America JPMorgan Chase & Co. Credit Agricole SA Citigroup Mizuho Financial Group China Construction Bank ING Group Banco Santander Bank of China Agricultural Bank of China Sumitomo Mitsui Financial Group Societe Generale Lloyds Banking Group Groupe BPCE UBS UniCredit S.p.A. Wells Fargo Credit Suisse Group Commerzbank Rabobank Group Intesa Sanpaolo Nordea Bank Norinchukin Bank Morgan Stanley

Rank 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57

Bank BBVA (Banco Bilbao Vizcaya Argentaria) China Development Bank Royal Bank of Canada Dexia National Australia Bank Toronto-Dominion Bank (TD Bank Group) Natixis CM10-CIC Group Bank of Communications Westpac KfW Bankengruppe Commonwealth Bank of Australia Danske Bank Bank of Nova Scotia ANZ Banking Group DZ Bank Group Standard Chartered Landesbank Baden-Wuerttemberg (LBBW) Bank of Montreal KBC Group Nomura Holdings Banco Bradesco Bayerische Landesbank China Merchants Bank

Country Spain China Canada Belgium Australia Canada France France China Australia Germany Australia Denmark Canada Australia Germany UK Germany Canada Belgium Japan Brazil Germany China

Total Assets ($b) 824.389 775.20 765.396 750.521 708.360 696.503 656.665 688.158 672.583 647.538 646.807 645.288 607.573 594.750 574.362 566.252 555.695 516.540 514.315 477.471 453.575 443.366 437.892 431.107 408.898

Date 30/06/2011 31/12/2010 31/07/2011 30/06/2011 31/03/2011 31/07/2011 30/06/2011 30/06/2011 30/06/2011 30/09/2011 30/06/2011 30/06/2011 30/06/2011 31/07/2011 30/09/2011 30/06/2011 30/06/2011 31/12/2010 30/06/2011 31/10/2011 30/06/2011 31/03/2011 30/06/2011 30/06/2011 30/06/2011

Banque Federative du Credit Mutuel (BCFM) France

Top 100 largest banks in the World, measured by total assets at the end of 2008
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The table below is a list of the Top 100 largest banks in the World, measured by total assets at the end of 2008. Three of the Top 5 largest banks are UK institutions. With assets of over US$3.5 trillion, Royal Bank of Scotland (RBS) is the largest bank in the World by assets and the fifth largest by market capitalization. RBS was founded in 1727 and is headquartered in Edinburgh, Scotland, United Kingdom.

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Bank Royal Bank of Scotland Group Barclays Deutsche Bank BNP Paribas HSBC JP Morgan Chase Credit Agricole Citigroup Mitsubishi UFJ Financial ING Group Bank of America UBS Mizuho Financial Societe Generale Banco Santander (1) UniCredit Industrial and Commercial Bank of China (ICBC) Wells Fargo China Construction Bank Sumitomo Mitsui Financial

Country UK UK Germany France UK US France US Japan US Japan France Spain Italy China US China Japan

Total assets ($b)

Date

3,514.58 31.12.2008 3,004.33 31.12.2008 2,895.50 31.12.2008 2,729.23 31.12.2008 2,527.47 31.12.2008 2,175.05 31.12.2008 2,173.89 31.12.2008 1,938.47 31.12.2008 1,922.18 31.03.2008 1,817.94 31.12.2008 1,537.92 31.03.2008 1,485.89 31.12.2008 1,464.74 31.12.2008 1,459.1 31.12.2008 1,425.72 31.12.2008 1,309.64 31.12.2008 1,104.01 31.12.2008 1,115.06 31.03.2008
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Netherlands 1,858.31 31.12.2008 Switzerland 1,740.27 31.12.2008

Rank 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 Bank of China Credit Suisse HBOS Dexia Group

Bank

Country China UK Belgium Germany Italy France Spain Denmark UK Germany Sweden France Canada Germany Germany Belgium Australia Canada UK Germany UK Canada Japan China

Total assets ($b)

Date

1,015.79 31.12.2008 1,004.25 31.12.2008 908.457 31.12.2008 872.453 31.12.2008 836.479 31.12.2008 775.607 31.12.2008 713.554 31.12.2008 664.137 31.12.2008 638.091 31.12.2008 625.035 31.12.2008 623.380 31.12.2008 593.390 31.12.2008 589.775 31.10.2008 588.426 31.12.2008 550.935 31.12.2008 495.837 31.12.2008 470.741 30.09.2008 468.330 31.10.2008 467.568 31.12.2008 460.102 31.12.2008 435.068 31.12.2008 422.106 31.10.2008 397.559 31.03.2008 392.034 31.12.2008

Switzerland 1,010.32 31.12.2008

Commerzbank AG Rabobank Intesa Sanpaolo Natixis BBVA Danske Bank Lloyds Banking Group Landesbank Baden-Wrttemberg Nordea Bank Banque Federative du Credit Mutuel Royal Bank Canada Bayerische Landesbank KfW Bankengruppe KBC Group National Australia Bank Toronto Dominion Bank National Westminster Bank Dresdner Bank AG Standard Chartered Bank of Nova Scotia Resona Holdings Bank of Communications

Netherlands 854.173 31.12.2008

10

Rank 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72

Bank Banque Populaire Group DZ BANK AG Commonwealth Bank of Australia Bank of Montreal ANZ Banking Deutsche Postbank AG Skandinaviska Enskilda Banken (SEB) Bank of Ireland Westpac Banking Banca Monte Dei Paschi PNC Financial Services Itau Unibanco CIBC Erste Group Svenska Handelsbanken U.S. Bancorp DnB NOR Fortis Bank Nederland Allied Irish Banks (AIB) Banco Brasil Bank of New York Mellon Swedbank China Merchants Bank Raiffeisen Banking Group (RZB Group) Bradesco State Bank of India

Country France Germany Australia Canada Australia Germany Sweden Ireland Australia Italy US Brazil Canada Austria Sweden US Norway Ireland Brazil US Sweden China Germany Brazil India

Total assets ($b)

Date

367.298 31.12.2008 361.708 31.12.2008 349.453 30.06.2008 338.983 31.10.2008 337.593 30.09.2008 322.749 31.12.2008 320.155 31.12.2008 311.656 31.03.2008 315.033 30.09.2008 298.348 31.12.2008 291.081 31.12.2008 290.080 31.12.2008 288.370 31.10.2008 281.107 31.12.2008 275.247 31.12.2008 265.912 31.12.2008 263.243 31.12.2008 254.177 31.12.2008 238.982 31.12.2008 237.512 31.12.2008 230.992 31.12.2008 230.20 31.12.2008 218.980 31.12.2008 208.330 31.12.2008 205.482 31.03.2008

Netherlands 257.051 31.12.2008

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Rank 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

Bank Landesbank Berlin (LBB) Sberbank of Russia China CITIC Bank Shanghai Pudong Dev Bank SunTrust Banks State Street SNS Reaal UBI Banca DBS Group Capital One Standard Bank Group Citizens Financial (2) China Minsheng Banking Banco Popular Espanol BB&T Corp. Industrial Bank BOC Hong Kong Regions Financial National Bank of Greece Banco Comercial Portugus (BCP) VTB Bank Fifth Third Bancorp EFG Eurobank Ergasias Banco Sabadell Esprito Santo Financial Group (ESFG) KeyCorp

Country Germany Russia China China US US Italy Singapore US South Africa US China Spain US China US Greece Portugal Russia US Greece Spain Portugal US

Total assets ($b)

Date

202.862 31.12.2008 199.069 31.12.2008 193.30 31.12.2008 191.80 31.12.2008 189.138 31.12.2008 173.631 31.12.2008 170.187 31.12.2008 169.264 31.12.2008 165.878 31.12.2008 165.230 31.12.2008 159.925 31.12.2008 154.40 31.12.2008 154.027 31.12.2008 152.01 31.12.2008 149.50 31.12.2008 146.248 31.12.2008 142.114 31.12.2008 131.766 31.12.2008 125.120 31.12.2008 119.764 31.12.2008 114.711 31.12.2008 112.166 31.12.2008 109.056 31.12.2008 104.531 31.12.2008
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Netherlands 173.617 31.12.2008

Hong Kong 148.049 31.12.2008

Rank 99

Bank Caja Mediterraneo (CAM)

Country Spain Hong Kong Greece US Germany Austria Greece Spain Italy US US US US Italy US Saudi Arabia Saudi Arabia

Total assets ($b)

Date

100.403 31.12.2008 98.356 31.12.2008 91.083 31.12.2008 82.054 31.12.2008 79.280 31.03.2008 77.889 31.12.2008 76.598 31.12.2008 74.614 31.12.2008 73.642 31.12.2008 70.121 31.12.2008 67.548 31.12.2008 65.816 31.12.2008 54.150 31.12.2008 53.094 31.12.2008 51.670 31.12.2008 47.693 31.12.2008 43.593 30.09.2008

100 Hang Seng Bank 101 Alpha Bank 102 Northern Trust 103 IKB Deutsche Industriebank 104 Volksbank AG 105 Piraeus Bank 106 Bankinter 107 Banca Popolare dell'Emilia Romagna 108 UnionBanCal 109 Comerica 110 M&T Bank 111 Hudson City Bancorp 112 Banca Popolare di Milano 113 Charles Schwab 114 Samba Financial Group 115 Al Rahji Bank

(1) - In December 2008, Banco Real and Alliance & Leicester were incorporated. (2) - Citizens Financial Group, Inc. is a subsidiary of Royal Bank of Scotland Group.

Note: A COMPARISON BETWEEN SBI AND BANK OF AMERICA BY THE VIRTUE OF NATURAL MONOPOLY STATUS

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BANK OF AMERICA V/S STATE BANK OF INDIA Basis of Comparisons

Bank Of America

State Bank of India

Inferences

Ownership

Private ltd.

Employees

2,86,951

Revenue

U.S $110.22 Billion in the 2010-11.

Total Assets

US $2.265 Trillion

The ownership has given SBI a monopoly status, whereas, BoA has been able to Governments of consolidate its India position over the years by the multiple ownership and innovative scale of operations and services. Despite cut in the number of employees by SBI, being a public banking company, it has tended to deploy a large number of 2,00,299 employees, while, BoA has flexible employment structure, mainly, professionals who arent even full time workers. The Revenue structure is more inclined towards institution building U.S $29.05 Billion in in SBI, while in 2010-2011. BoA, revenue margins from commercial sources is buoyant. US $ 323.0 Billion

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BANK OF AMERICA V/S STATE BANK OF INDIA Basis of Comparisons Total Equity Profits/Net Income Founded

Bank Of America

State Bank of India

Inferences

US $231.444 Billion U.S. $2.238 Billion. 1998 (As a Bank of corp.)

Area Served

World Wide (150 Countries)

No. of Consumers No. of ATMs

50 Million 19,000

US$ 18.5 Billion U.S $2.6 Billion 1 July, 1955 The scale of operations for BoA have expanded upon the fact, that, world over BoA has grown because of its acceptability as a technically sophisticated banking entity and also because of the demonstration effect in the developing nations, particularly, India & Over 131 taking it as a status Overseas (32 symbol for people. Countries) SBI is still to be known internationally, though, Indian Banks are told be sound banking units in the international markets based upon their credit worthiness, though more based upon the credit and worthiness that is infused by the decree than commercialization. Not Known 21,000 along with the Associates (4,500)
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BANK OF AMERICA V/S STATE BANK OF INDIA Basis of Comparisons

Bank Of America

State Bank of India

Inferences

No. of Branches

6,100

Areas of operations

Urban

Associates Banks Holdings 12.2% U.S Deposits of consolidated holdings

With a large web of presence in India and its interiors, SBI much overwhelms BoA as a Banking entity with its seen and bought and also 26,500 cheap and approachable services. Whereas, BoA has not penetrated, logs into only the worthy customers arena. Customers, at places, differ across beliefs and customs as well as mindsets, along Urban As well as with income levels Rural with SBI, whereas, (Planning to cover with an only 1,00,000 Villages in customer base into Two Years) commercial zones, BoA has been able to cater only to the urban sect. State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travancore 33% Govt. of India With a major set of Deposits government deposits, SBI has tended to be virtuous to have a continuous flow of liquidity into its

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BANK OF AMERICA V/S STATE BANK OF INDIA Basis of Comparisons

Bank Of America

State Bank of India

Inferences

Presence in Fortune Yes, Bank of Yes (Only Bank in 500 Companies America serves India). Rank: 282 on clients in more than it net assets. 150 countries and has a relationship with 99% of the U.S. Fortune 500 companies and 83% of the Fortune Global 500. As of 2010, Bank of America is the 5th largest company in the United States by total revenue, as well as the second largest non-oil

accounts. Moreover, while holdings in BoA are in minority stake, the returns accruing to the government are comparatively more than what is expected of SBI to yield it to the GoI. Fortune 500 status to an Indian Bank implies that the stocks of such banks are readily convertible into cash. Bank of America serves clients in more than 150 countries and has a relationship with 99% of the U.S. Fortune 500 companies and 83% of the Fortune Global 500. As of 2010, Bank of America is the 5th largest company in the United States by total revenue, as well as the second largest non-oil company in the U.S. (after WalMart

Positive Fallouts

SBI

BOA
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between SBI & BOA Positive Fallout Transactions 56 million per day

Profitability Area of operations Holdings No. of Branches No. of ATMs Area Served Negative Fallouts between SBI & BOA Negative Fallout No. of Employees Revenue No. of Consumers

U.S $2.6(Billion) Urban as well as rural 12.2% U.S Deposits

U.S. $ 2.238(Billion) Urban 33% Govt. of India Deposits 26,500 6,100 21,000 19,000 India & India & Over 131 Worldwide Overseas (32 Countries) SBI BOA

2,00,299 U.S $29.05 Billion Not known

2,86,951 U.S $110.22 Billion 50 Million

As per Report on Trend and Progress of Banking in India 2011-12, published by RBI the total liabilities / assets of Indian banking sector was Assets Rs.71,834 billion & 82,994billion in 2011, 2012 respectively. If we convert into US $ it cannot match global banks. Going by the comparative figures that are available of US even as of 2005, if we add up today figure of Nationalized Banks India with US even merger of 19 nationalized banks is not going to create a new entity of international status. Even SBI is not even one-tenth the size of the tenth largest bank in the world. But this also means that no amount of consolidation will give Indian banks a global size in the foreseeable future.

To the utmost surprise its clear from above, the market capitalization of Chinas ICBC which is approximately $158 billions is far more than the collective market capitalization of 37 listed Indian banks the market cap of which stood at $69.50 billions as on Nov 10, 2006. This amount is eight

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times than more than Indias most valuable bank, ICICI Bank. Though ICICI Bank may be giant among vis-a-vis all Indian banks collectively in terms of market capitalization yet it has miles to go to touch a foreign biggy. The reason of undervaluation of Indian banks lies in the fact that interest rake risk is comparatively higher and interference in the functioning of banks by the government.

Indian banks are not able to compete globally in terms of fund mobilisation, credit disbursal, investment and rendering of financial services.. In 2008, there was only one Indian lender - SBI, at eighth place among the top 25 Asian banks. Industrial and Commercial Bank of China, the biggest Asian bank and the worlds eighth biggest bank, is four times bigger than SBI, both in terms of tier-I capital as well as assets. Another recent study Report on Currency and Finance released by the RBI reveals that the combined assets of the five largest Indian banks - SBI, ICICI Bank, Punjab National Bank, Canara Bank and Bank of Baroda are just about half the asset size of the largest Chinese bank, Bank of China. The bank is 3.6 times larger than SBI in terms of assets, branches and profits.

SBI is ranked at 380 in 2008 Fortune Global 500 list, and ranked 219 in 2008 Forbes Global 2000. In May 2006, Earnst and young bank estimated that Chinas bad bank loans were about $911 billions which included $358 billion for the 4 largest banks alone. ICBC had total asset worth $812 billion which is closed to Indias GDP. The largest bank of India SBI which covers almost 1/5th of the total banking assets over the past 3 to 4 years had only $84 billion. On the basis of Tier I capital SBI has a size of 1/10th to Citigroup ($79 billion).Hence in this regard SBI is at no. 72nd in world. Its not even among the first 10 big banks in Asia which is occupied by Chinese Bank with each of them having a capital base of over $30 billions. Indian banks features among the top 25 Asian Banks in contrast to China which has 6 representations

Its assets (along with those of its five associate banks) are worth $355 billion but thats nowhere close to the top lenders. SBI was ranked 60th in the list of worlds top 1,000 banks by The Banker magazine in July. Bank of America, which topped the list, had assets of $2.16 trillion. It might take SBI several years to reach that size organically, and by the time it does so Bank of America will have grown even bigger.

The argument Bigger size is needed for scale economies as being advanced by the Finance Ministry fall on four legs as scale economies are useful but beyond a certain size, the benefits of scale taper off and tend to be offset by growing complexity. Internationally, studies have shown that a size of
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around $ 20 billion is optimal. Indias top ten banks meet this size requirement.

One outcome of the present global crisis is that large banking monsters have come to be feared. The world's largest banking group viewed under many parameters including profitability is the Citigroup. An outstanding example of a financial services group that grew through M&As, the bank has been asked by the Federal Reserve Board to desist from further acquisitions until it refined its systems and procedures. If a bank such as the CITI, which has been a global force, could be faulted on its basics, there is clearly a message for Indian PSBs to be far more circumspect than what the Government would recommend. Some of the worlds biggest banks, the Citigroup notably, which relied heavily on mergers and acquisitions to grow phenomenally, have been rapped on the knuckles by the regulators and are realising that such stupendous inorganic growth has come at a price. But In India, there is a revival of the clamour for bank consolidation disregarding these adverse trends

Today, even with consolidation as proposed if a loan size is, say, Rs 10,000 crore, there will not be single consolidated bank which can take the portfolio on its book. It has to be once again put together a consortium to avoid risks in their balance sheet should it become NPA like the recent Kingfisher Airlines Or Deccan Chronicle The biggest problem of much talked about mergers of banks is the implication of consolidation on employment, profitability, market share, human motivation and technology. Since the merger exercise is in its infancy stage in India, the past experience of post merger implications on economy can be taken into considerations to devise and monitor of merger. Employees or most affected party of mergers. The UNI Europe Report estimated that 1, 30,000 jobs have been lost in the last 10 years as a result of mergers and acquisitions. The following table response of employees on VRS (refer table):

BANK EMPLOYEES RESPONSE TO VRS OFFER IN 2001 Name of the Bank Total Strength VRS Optees Percentage SBI 237,000 35,000 13.89 Allahabad Bank 22,355 1,571 7.03 Andhra Bank 14,603 1,758 12.04 Bank of Baroda 47,054 3,200 6.80 Bank of Maharashtra 16,098 2,700 16.77
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Bank of India Canara Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce PNB Punjab and Sindh Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijay Bank

51,962 55,363 14,412 25,935 28,008 14,398 65,705 12,192 33,223 31,223 30,834 21,316 13,646

7,700 8,600 3,710 3,988 3,944 800 5,800 2,000 5,459 5,479 4,303 3,000 2,400

14.82 15.53 25.74 15.38 14.08 5.56 8.83 16.40 17.55 17.55 13.96 14.07 17.59

According to this report in India about 11% of over eight lakh strong bank employees opted for first ever voluntary retirement scheme. The other problems of mergers may be as follows: Highly innovative product portfolio may create among the customers and only a few smart customers can take the benefits of product offered by merged banking entities. The branch closers can create job losses and back room operations may reduce face to face interaction of the service providers with the customers. The work load of employees will be highly specific and some time even complicated due to financial conversions. Therefore a burdened employee may not be able to respond to customer effectively. Highly techno savvy nature of banking operations may create problems to simple and non techno public. The focus of banks would be highly professionalized and the efforts of big banks will be directed towards making more and more profits and less concentration on consumers grievances.

Central Government has been building pressure on banks to make best efforts for merger and acquisition. But I am unable to understand the motive behind it in Indian perspective. Finance Minister has said that through consolidation, financial powers of banks will improve and they
21

will not only be able to augment efficiency and help in GDP growth but also get success in competing with International big banks. Here the million dollar question arises whether Late Indira Gandhi had nationalized banks to compete with International banks, whether banks are meant to extend credit in thousands of crores to a few hundred merchants or manufacturers only? Has government forgotten the social objective of banks completely? Is it possible for a government to survive by discarding the interest of common men, farmers, small traders in India? Is it necessary for India to have bigger banks to extend credit to farmers and small traders who together constitutes 95% of population and without whose support even economic viability of large projects would be at stake?

It is important to mention here that there is sharp rise in loan portfolio or visible growth in advances of banks in general is not due to financing made by banks to small traders and farmers but only due to bulk financing made to big corporate houses, to real estate developers and to Infra structure developers.

Does any one in the government or in RBI mean that by merger and enhancing powers of banks, there will be equitable GDP growth in country like India?

Even in America where big banks are many, one out of every seven Americans starves and struggle for earning their bread and butter for at least survival. In India the position is worse than that in USA. In India nine out of every ten Indians are unable to earn sufficient money even for respectful living. Considerable large proportion of Indian population is suffering from mal-nutrition; they die of curable diseases in want of proper medical assistance and they remain unemployed in want of adequate opportunities. This is India where even federal structure of the country is at stake due to largely growing unemployment. Besides in majority of villages, small towns and cities there is no proper sanitation facilities, acute scarcity of water and electricity, crisis for medical treatment and what not. This is why we reiterate that Indian environment is different from other developed nations and hence need unique treatment,

22

 It is worthwhile to add here that USA government have realized after fall of big banks and financial Institution during last year that management of big banks is very difficult compared to smaller ones. Still there are about 8000 smaller banks functioning in USA to serve common men. It is also true that 125 banks became bankrupt or closed their shutters during the current year in USA. If we talk of India we have less than 30 public sector banks and they are said to be in better health position. They are well scattered in every nook and corner of the country to serve Indians in general. They have to be encouraged to extend maximum help to small borrowers. They cannot extend any better help to poor person after merger of banks. Then what is the need of merger and acquisition? Why is government bent upon merger Need of the hour is to make them able to cater to the needs of common men. Need of the hour is to strengthen the existing structure of banks, make them more and more efficient and enthusiastic. Government should make efforts for repayment of loan and for this purpose make water tight laws to ensure cent percent recovery of loan from willful defaulters so that proportion of dead money in banks balance sheet comes down and they can afford and generate will to make finance to common men. Present scenario is that branch manager of every banks branch is afraid of extending credit to small borrowers in fear of account going bad and lastly added to Non Performing Asset. Need of the hour is to avoid political intervention in banking affairs and to resort to healthy norms for financing without any fear of target achievement. To add fuel to fire all banks are suffering from staff shortage and as a consequence there is no monitoring on existing borrowal accounts and gradually service quality in banks at many branches is deteriorating in want of adequate staff. Last but not the least; bitter truth is that big business houses are getting all sorts of help from the government, from the banks and from all corners but all at the cost of poor and middle family. Rich business houses are producing, hoarding and realizing maximum profit on their products and it will not exaggeration to say that the present trend of rising price is caused by these profit makers only. Government has been making promises and promises to control price, but always fail on this front because they have given undue freedom and undue privileges to these business houses. I hope government will make all best efforts to give relief to general mass who are

23

subjected to unbearable pain on account of sharp price rise in all commodities without proportionate rise in their monthly income. India is said to be suffering from extremism in some districts due to increasing poverty and due to the fact that they are denied their legitimate right and they are even deprived of justice in proper time. Can merger and acquisition by banks help in ameliorating their problems of poverty ridden Indians? we would like to draw the attention of learned FM and PM that late Indira Gandhi (Congress Party) had nationalized banks because private banks were hesitant to extend credit to common men, villagers were deprived of banking facilities and common men was afraid of even entering in to bank. Private Banks were exploiting not only staff working in the banks but were also exploiting business houses. It will not be exaggeration to predict and say that the same Congress Party under the banner of UPA is dragging banking industry in pre-nationalization era. It has to be borne in mind that during reformation era 23 banks were forcefully merged to bigger banks by government of India because they succumbed to malady and irregularity they accumulated, and not because they were small banks. Giant banks, Lehman Brothers, AIG failed not because they were big but they followed wrong policies and committed misadventure in delivery of credit and in making investments.

Finally one doubts the honesty and integrity of government in their efforts for merger, acquisition and consolidation of banks because they know the quantum of malady and bad assets hidden behind the rosy balance sheets of PSBs., the merger policy discussions are esoteric, technical and limited to a small number of influential public and private sector institutions leaving policy discussions vulnerable to be structured to favour the interests of large, financial firms over other interests . Otherwise there is no reason for providing capital infusion to various weak banks from time to time. It is their political agenda to save the banks from exposure of their reality when the misdeeds increases to such a large extent that it punctures the tyre of running banks. They are trying to divert the attention of public from inherent weaknesses of PSBs and this is why they are not agreeable to respectable wage revision of bank employees. Exodus of talented employees and non entry of well qualified person in PSB banks is also a vital reason behind growing weakness of Banks. In this regard we bring the most important, question posed in the discussion paper put out by the Reserve Bank of India in August 2010 examines the pros and cons of the 'Entry of New Banks in the Private Sector'. is "whether large industrial and business houses could be allowed to
24

promote banks". The Indian licensing guidelines of 2001 do not allow "large" industrial houses to sponsor new banks. The reasons go back to the dubious practices of such banks directing credit to preferred borrowers prior to bank nationalization in 1969. All the disadvantages of allowing industrial houses to sponsor banks are as valid today as before. Among major economies, Canada the United Kingdom, Germany] and France do not bar industrial companies from promoting banks. In contrast, the United States does not allow industrial houses to own banks. It is evident from the dispersed nature of past banking sector breakdowns that permitting industrial houses to own banks or disallowing them was not a good indicator of whether banks would need government back-stop funding assistance. The fourth, and most important, question posed in the paper is "whether large industrial and business houses could be allowed to promote banks". The Indian licensing guidelines of 2001 do not allow "large" industrial houses to sponsor new banks. As the RBI paper has suggested, the probability of industrial houses interfering in banks promoted by them could be reduced by restricting banking licences to companies with diversified ownership. The downside risk is that it may be practically impossible for RBI to prevent crony lending practices. Consequently, it is for RBI to assess whether, at our current stage of development, it can consistently monitor bank lending and stand up to pressures from corporate oligopolies. Consequently, we need to assess if periodic banking sector crises are inevitably linked to business cycles or whether they are more influenced by unconstrained and underregulated growth of the banking sector as compared to the rest of the economy. For example, the banking sectors in the US, the UK, Iceland, Ireland, Cyprus and regional savings banks in Spain are significantly oversized and/or over-leveraged. It is high time to reflect on the received wisdom that more is good in banking since this promotes growth. RBI should take its time to reassess outstanding levels of household, corporate and public internal and external debt, sectoral growth of credit and preferred size of the banking sector versus that of the economy before issuing licences for the entry of new private banks.

25

Worlds largest banks in terms of market capitalization

The list below shows the largest banks in the world based on market capitalization as of January 20, 2012. Industrial & Commercial Bank of China (ICBC) is the largest bank in the world by market capitalization value. Chinese banks occupy the top positions. The Peoples Republic now has 4 of the top 7 banks, including the top 2.

Ran k 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Bank Industrial & Commercial Bank of China (ICBC) China Construction Bank Wells Fargo & Co HSBC Holdings Agricultural Bank of China JP Morgan Chase Bank of China Itau Unibanco Citigroup Commonwealth Royal Bank Canada Bank of America Toronto-Dominion Bank Banco Santander Westpac Mitsubishi UFJ Financial Banco Bradesco Sberbank of Russia ANZ Banking Bank of Nova Scotia

Country China China US UK China US China Brazil US Australia Canada US Canada Spain Australia Japan Brazil Russia Australia Canada

Market cap ($b, 20/1/2012) 240.95 195.85 160.72 150.90 141.73 140.95 128.80 88.17 86.67 82.62 76.56 71.77 70.53 67.32 65.77 64.25 63.91 59.36 58.48 58.16

26

Ran k 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 Standard Chartered

Bank

Country UK Australia US France US Switzerland China China Japan Spain Brazil UK Germany Canada Japan US Brazil UK Sweden China US Switzerland Italy Hong Kong China US

Market cap ($b, 20/1/2012) 57.68 56.04 54.85 54.21 53.53 52.00 48.11 45.15 43.62 42.98 42.19 42.07 39.17 37.93 35.82 35.49 34.97 34.76 33.57 31.40 31.37 31.29 30.76 29.00 28.13 27.76 25.80

National Australia Bank US Bancorp BNP Paribas Goldman Sachs Group UBS Bank of Communications China Merchants Bank Sumitomo Mitsui Financial BBVA Banco do Brasil Barclays Deutsche Bank Bank of Montreal Mizuho Financial Group Morgan Stanley Banco Santander (Brasil) Lloyds Banking Group Nordea Bank China Citic Bank PNC Financial Services Credit Suisse Group Intesa Sanpaolo BOC Hong Kong Shanghai Pudong Development Bank Bank of New York Mellon

Canadian Imperial Bank of Commerce (CIBC) Canada

27

Ran k 48 49 50 Hang Seng Bank State Bank of India

Bank Royal Bank of Scotland

Country UK Hong Kong India

Market cap ($b, 20/1/2012) 25.17 24.49 24.48

WORLDS 50 SAFEST BANKS

1. KfW (Germany) 2. Bank Nederlandse Gemeenten (BNG) (Netherlands) 3. Zrcher Kantonalbank (Switzerland) 4. Landwirtschaftliche Rentenbank (Germany) 5. Caisse des Dpts et Consignations(CDC) (France) Tie* 6. Landeskreditbank BadenWrttemberg Frderbank (L-Bank) (Germany) Tie* 6. Nederlandse Waterschapsbank (Netherlands) 7. Banque et Caisse dpargne de ltat (Luxembourg) 8. Rabobank Group (Netherlands) 9. NRW.Bank (Germany) 10. Royal Bank of Canada (RBC) (Canada) 11. Toronto-Dominion Bank (TD 26. Pohjola Bank (Finland) 27. BNP Paribas (France) 28. China Development Bank (China) 29. DZ Bank ** (Germany) 30. Agricultural Development Bank of China (China) 31. CoBank ACB (United States) 32. National Bank of Abu Dhabi (United Arab Emirates) 33. National Bank of Kuwait (Kuwait) 34. Pictet & Cie (Switzerland) 35. Deutsche Bank (Germany) 36. JPMorgan Chase (United States) 37. Banque Fdrative du Crdit
28

WORLDS 50 SAFEST BANKS

Bank) (Canada) Tie* 12. National Australia Bank (Australia) Tie* 12. Commonwealth Bank of Australia (Australia) 13. Westpac Banking Corporation (Australia) 14. Scotiabank (Bank of Nova Scotia) (Canada) 15. DBS Bank (Singapore) 16. Oversea-Chinese Banking Corporation (Singapore) 17. United Overseas Bank (Singapore) 18. Caisse centrale Desjardins (Canada) 19. HSBC Holdings (United Kingdom) 20. Nordea Bank (Sweden) 21. Australia and New Zealand Banking Group (ANZ) (Australia) 22. Svenska Handelsbanken (Sweden) 23. Bank of Montreal (BMO) (Canada) 24. Canadian Imperial Bank of Commerce (CIBC) (Canada) 25. BNY Mellon (United States) Mutuel (BFCM) (France) 38. U.S. Bancorp (United States) 39. DNB Bank ** (Norway) 40. National Bank of Canada ** (Canada) 41. Northern Trust Corporation (United States) 42. Qatar National Bank ** (Qatar) 43. SAMBA Financial Group ** (Saudi Arabia) 44. La Banque Postale ** (France) 45. Bank of Taiwan ** (Taiwan) Tie* 46. Shizuoka Bank (Japan) Tie* 46. Banco del Estado de Chile (BancoEstado) ** (Chile) 47. Barclays Group (United Kingdom) 48. Crdit Agricole (France) 49. Bank of Tokyo-Mitsubishi UFJ (Japan) 50. Banco Santander (Spain)

29

*A tie is assigned when two banks with the same score have total assets within a $5 billion range. **NEW ENTRANTS PR date: Global Finance magazine March 1, 2012 Ratings as of: February 22, 2012

A listing of those banks who have increased their score since October

Most Improved Ratings: April 2012

Name Agricultural Development Bank of China Corpbanca Overseas-Chinese Banking Corp United Overseas Bank DZ Bank Banco de Crdito e Inversiones Bendigo and Adelaide Bank Banco do Brasil Score Score Score April October Change 20 9.5 23 23 20 15 13 6 18.5 8 22 22 19 14 12 5 +1.5 +1.5 +1 +1 +1 +1 +1 +1 Country China Chile Singapore Singapore Germany Chile Australia Brazil

Notes: The sovereign debt crisis is still raging in Europe, the Arab Spring outcome is far from clear and global elections have put political stability at risk in some markets. As a result, the credit ratings of European and global banks have been affected, and have moved down the ranking of the Worlds Safest Banks. In contrast, a number of banksparticularly in Asia and the Middle Easthave benefitted by moving up the ranking. In addition, even in the face of tough market conditions some banks have actually improved their score by having their ratings upgraded since the last ranking was released. With these factors in mind, Global Finance has launched the Worlds 50 Safest Banks: April 2012; and launched a list of the Most Improved Ratings those banks who have increased their score since October. According to Global Finance survey of the Worlds 50 Safest Bank in 2012, American banks are really not safe at all, at least compared to other

30

countries. Not a single U.S. bank figured in the top 20. Almost forty percent of these banks were European; including Credit Agricole in France and Banco Santander in Spain. Global Finance has been compiling a list of the Worlds 50 Safest Banks for the past 21 years. Rankings are determined by long-term credit ratings and analysis of total assets owned by the 500 largest banks in the world.

Top 500 Most Valuable Banking Brands

Brands are the most valuable intangible assets in business today. They drive demand, motivate staff, secure business partners and reassure financial markets. Leading edge organisations recognise the need to understand brand equity and brand value when making strategic decisions If we now consider the topmost 500 brands we find India was the only BRIC nation without a banking brand placing in the top 20. 2012 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 2011 Name 3 HSBC 2 Wells Fargo 1 Bank of America 4 Santander 5 Chase 9 Citi 13 American Express 12 BNP Paribas 6 Bradesco 10 China Construction Bank 8 ICBC 7 Barclays 11 Ita 14 Deutsche Bank 17 Bank of China 18 JP Morgan 2012 27,597 23,229 22,910 19,969 18,964 18,639 18,231 16,809 15,692 15,464 15,164 13,552 13,171 12,906 12,857 11,602 2011 27,632 28,944 30,619 26,150 19,150 17,133 15,529 16,643 18,678 17,092 17,194 17,358 16,655 15,169 13,257 13,241 2012 2011 AAA AAA AA+ AA+ AA+ AAAAAA- AAA AA+ AAAA+ AA AAAAA AA+ AAAAAA- AAA AA AA AA+ AA AA+ AA AA AA AA+ AA+ AAAA+ AA+ AA-

31

2012 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

2011 Name 19 Sberbank 23 Agricultural Bank of China 16 Goldman Sachs 28 RBC 31 TD 15 Credit Suisse 27 MUFG 26 Standard Chartered 25 Rabobank 22 Banco do Brasil 20 BBVA 32 VISA 29 Morgan Stanley 21 UBS 44 Scotiabank 36 Bank of Communications 47 Bank of Montreal 33 Nordea 45 MasterCard 50 Capital One 38 PNC 24 Socit Gnrale 34 State Bank of India 55 CIBC 37 U.S. Bank Commonwealth Bank of 46 Australia 42 National Australia Bank 30 UniCredit 53 Royal Bank of Scotland The Bank of New York 43 Mellon 56 China Merchants Bank 35 SMFG

2012 10,772 9,929 9,332 8,647 8,499 8,368 8,315 7,624 7,328 7,264 7,195 7,087 6,347 5,944 5,717 5,630 5,360 5,253 5,177 4,947 4,845 4,734 4,687 4,557 4,514 4,244 4,160 4,140 4,056 4,029 3,980 3,848

2011 12,012 9,283 13,406 7,069 6,604 13,497 7,336 7,419 7,423 9,526 10,720 6,555 6,857 9,915 4,120 5,476 3,797 5,741 3,931 3,584 4,993 8,153 5,670 3,276 5,416 3,858 4,176 6,621 3,346 4,156 3,189 5,512

2012 AA+ A+ AA+ AA+ AAAA+ AAAAAAA+ AA AAAAAAA AA AA AAAAAA AA+ AA AA A+ AA+ AAAAAA+ AA A+ A+ AAAAAA-

2011 AA+ A+ AAAAA+ AAAAAA+ AAAAAAA+ AA AAAAAAA AAAAA+ AA+ AA+ AAAA AAAAAA+ AA AAAAAAAA AAA+ A+
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2012 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80

2011 Name 52 Westpac 59 ANZ 39 Mizuho 40 DZ BANK 61 ING (Banking) 48 Crdit Agricole 65 Nomura 60 Danske Bank - Shinhan Financial 54 Lloyds TSB 57 BB&T 51 State Street 41 Erste Shanghai Pudong 92 Development Bank 67 BlackRock 72 DnB 80 Hang Seng Bank 58 Commerzbank 87 DBS 75 Ameriprise Financial 74 China CITIC Bank 93 KKR 73 Banamex 62 SunTrust 77 Standard Bank 89 CMBC 66 Halifax 81 KB Kookmin 82 CIC 64 Crdit mutuel 78 Macquarie 88 Svenska Handelsbanken

2012 3,570 3,433 3,377 3,330 2,845 2,841 2,841 2,792 2,746 2,701 2,616 2,517 2,476 2,450 2,433 2,395 2,334 2,328 2,316 2,314 2,295 2,291 2,222 2,169 2,165 2,107 2,069 2,060 1,987 1,951 1,907 1,897

2011 3,384 2,977 4,349 4,303 2,906 3,706 2,651 2,948 1,263 3,332 3,067 3,411 4,293 1,836 2,591 2,433 2,199 3,067 2,041 2,283 2,342 1,832 2,406 2,821 2,257 1,951 2,632 2,197 2,185 2,677 2,186 2,031

2012 AA AA+ AAA AAAAAAAAAAAAAA+ AA AAAAAAAAAA AAAA AA A+ A+ AA AAAA+ A+ AA AAA+ AAA AA-

2011 AA AA+ A+ AAAAAAA+ A+ A A AA+ AAAA A+ AA+ AA AA AA+ AA+ AA A+ A+ A+ AAAAAA+ AAA A+ AAAA AA

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2012 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112

2011 Name 68 Raiffeisen Bank 106 CIMB 63 HypoVereinsbank 71 KBC 86 Charles Schwab 90 Bank of Scotland 94 VTB 79 NatWest 91 ABSA 69 Postbank Franklin Templeton 100 Investments 84 SEB 130 National Bank of Canada 124 United Overseas Bank 97 Fifth Third Bank 95 Akbank 101 Industrial Bank 76 Isbank 118 Maybank - China Everbright Bank 99 St George Bank 70 ICICI Bank 142 Swedbank 96 Garanti 85 Natixis 102 Intesa Sanpaolo 115 Blackstone 146 OCBC Bank - Hana Financial Group 103 DekaBank 113 ONEX 114 PKO Bank Polski

2012 1,882 1,841 1,825 1,816 1,808 1,802 1,797 1,797 1,796 1,767 1,760 1,663 1,660 1,637 1,608 1,582 1,571 1,569 1,566 1,561 1,536 1,495 1,467 1,434 1,429 1,425 1,405 1,366 1,362 1,317 1,301 1,293

2011 2,575 1,564 2,813 2,466 2,046 1,893 1,785 2,200 1,876 2,506 1,713 2,069 1,247 1,277 1,752 1,780 1,705 2,280 1,403 1,722 2,501 1,082 1,754 2,062 1,691 1,467 1,032 1,679 1,490 1,480

2012 2011 A+ AAAAA- AAAA+ A AAA AA AA A AA+ A+ AA A AA AA A+ AAAAA+

AAAAA+ A+ AAAAAA AAAAA- AAAA A+ AA AA AAA+ A AA AA AA AA A+ A AAA- AAAA+ AAAA AA AA AA AA AA A+ AAAAA AAAA AA

34

2012 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144

2011 Name 164 Discover 191 QNB 135 Public Bank 110 Al Rajhi Bank 139 Invesco National Bank of Abu 138 Dhabi 98 Scottish Widows 83 LCL 121 Northern Trust 105 Regions 119 Yapi Kredi 123 Keycorp Shenzhen Development 188 Bank 126 Nedbank 169 Hua Xia Bank 195 BRI 116 First National Bank 133 Investec 132 Emirates NBD 109 Banca IMI 122 Julius Baer 137 M&T Bank 125 la Caixa 112 Bank Austria 149 Kasikorn 160 Bancolombia 166 CITIC Securities 140 Raymond James 104 Credit du Nord 148 Industrial Bank of Korea 154 Resona Bank 205 ZKB

2012 1,291 1,264 1,233 1,244 1,221 1,206 1,158 1,150 1,150 1,141 1,138 1,127 1,097 1,093 1,093 1,084 1,076 1,055 1,038 1,034 1,028 1,010 1,002 999 999 953 947 937 931 925 916 873

2011 886 703 1,217 1,504 1,121 1,142 1,738 2,151 1,339 1,609 1,395 1,300 721 1,268 832 682 1,463 1,225 1,238 1,516 1,302 1,146 1,273 1,501 1,019 900 866 1,103 1,659 1,024 967 651

2012 2011 A+ A AA+ AA+ AAA- AAAAA+ AA+ AAAAAA+ A+ A+ AA+ A+ AAA+ A AA A+ A AA+ A AAA+ A

AAAAA+ A+ AA AAAAA- AAAA+ AAAA AA AAA+ AA+ AA+ AAAAAAAA+ A+ A+ AAAAAA AA AAAAAAAAA A A+ A A+ A AAAA35

2012 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177

2011 Name 158 Halkbank 159 Bank Pekao SA 268 Chuo Mitsui 173 T. Rowe Price 120 BNL Banca Commerciale 117 Monte dei Paschi di Siena 153 NORD/LB 136 Bank Hapoalim 202 Samsung Card 111 Cheltenhan & Gloucester 175 samba 151 VakifBank 152 LLB - LPL Financial 182 First Gulf Bank 129 Banco Popolare 165 Daiwa 134 Caja Madrid 225 BCA 177 Sallie Mae 208 Mandiri 235 Bank of Beijing 214 Bank of Baroda 141 Grupo Banco Popular 203 Axis Bank 184 NBK 197 Punjab National Bank 108 UBI Banca 181 riyad bank 206 Banco de Chile 256 Bank Negara Indonesia 199 OTP Bank 189 KEB

2012 859 857 856 841 833 830 823 814 796 795 740 737 714 714 713 708 703 695 694 686 685 679 675 669 657 642 640 636 633 630 629 627 623

2011 908 903 412 800 1,376 1,404 968 1,168 657 1,502 792 1,000 977 750 1,253 886 1,221 543 783 638 520 585 1,087 652 743 675 1,519 751 643 455 669 721

2012 AA A+ A A+ A+ A+ AAAAA AAAAAAA+ A AA+ A A A AAA+ A AAAA AAAA AA+ A A+ AA AAA+ AA A

2011 AA A+ A A+ A+ A AAAAAAA AAAAAAAA+ A A+ AA AAA+ A AAAA AA AA AA+ AAA+ AAAAA+ AA A

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2012 2011 178 128 179 180 181 182 183 143 210 218 194 163

184 161 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 207 174 185 223 262 168 226 183 241 220 162 215 216 237 170 193

202 200 203 204 205 206 207 208 187 192 201 155 209 249

Name E*TRADE FINANCIAL Corp Leumi ORIX Banorte Bank of Ireland Credit Saison Wstenrot & Wrttembergische SCB Helaba MLC Man Group Legg Mason Huntington Bancshares Bank Moskvy Lazard Comerica Colonial First State Nykredit Ulster Bank ADCB RHB AmBank Banco Sabadell CR Veneto Banca Popolare dell'Emilia Romagna Eurohypo Mediobanca Israel Discount Bank Caixa Geral de Depsitos Banca CR Firenze AEON Credit Service

2012 622 612 611 608 606 600 597 594 588 572 566 563 562 551 548 544 544 533 524 513 511 506 498 497 496 488 486 486 484 482 477

2011 1,257 1,066 620 581 684 892 897 640 798 734 550 438 842 543 750 503 566 892 584 584 517 829 689 665 724 695 661 721 624 468

2012 AAA+ A+ A+ AAA A AAA A+ A+ A+ A+ A+ A+ AAAAA+ AA A+ A+ AAAA A+ A A+ A A+ A+ AAA

2011 AAAA A A+ AA+ A+ AA+ A+ AAA+ A AAAA+ A+ A+ AA AAA+ A+ AA A+ A+ A+ A A+ AAA+ A

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2012 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240

2011 Name 240 Banque Saudi Fransi 284 Banco De Bogota 231 Schroders 245 BEA 178 Banesto 229 ICAP 228 Shizuoka Bank 180 Bangkok Bank 314 Kuwait Finance House 337 CIT - BES 270 Haitong Securities 304 Bankwest 243 Bankinter - Davivienda 307 BCV National Bank of New 251 Zealand 360 Shinsei Bank 144 Citizens 255 anb 234 Chiba Bank 246 SABB 236 Krung Thai Bank - GF Securities 294 BOK Financial 252 Stifel Financial Corp 263 kotak 275 Bank Zachodni WBK 248 Jyske Bank 156 Charter One 247 Arab Bank 217 Bank of Ayudhya

2012 477 476 475 471 470 462 460 454 449 441 436 423 422 422 421 420 417 412 411 411 410 409 404 403 400 400 394 393 393 393 392 392

2011 507 382 530 491 779 539 539 752 326 295 319 408 348 501 343 466 262 1,055 457 522 476 518 358 463 434 399 468 956 473 582

2012 AAAAAA+ AAA+ A+ AA AAA+ A+ AAA AAAAA AAAAA A+ AAA+ AAA+ A AAA A A+ A+ A+ AAA+

2011 AAAAAAAA+ AAA+ AAAAA+ A AA A+ AAAAA+ AAAAAA+ AAA+ AAA+ A A+ A+ A+ AAAA-

38

2012 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272

2011 Name 2012 311 Bank Danamon 390 244 Bank of Yokohama 389 258 Komern banka 387 227 Banco di Napoli 383 277 Finansbank 372 342 Investors Group 362 286 China Merchants Securities 362 Banco Comercial 198 357 Portugus 323 HDFC 355 167 National Bank of Greece 354 259 Bank of the West 349 320 Banrisul 347 242 Bank of India 343 484 Amundi 340 272 BRE Bank 339 Halyk Savings Bank 335 339 Kazakhstan 291 Vontobel 335 261 TCF 333 190 Banca Popolare di Milano 332 224 Canara Bank 328 - Chongqing Rural 326 285 Jefferies 323 303 Dubai Islamic Bank 322 356 Bank Of Ningbo 321 493 African Bank 319 317 Close Brothers 318 279 First Horizon 316 327 First Citizens Bank 315 266 Knight 314 392 Attijariwafa Bank 311 288 BNZ 307 346 Eaton Vance 306

2011 337 500 450 542 394 293 379 502 315 863 448 319 502 175 405 295 367 440 716 550 381 350 270 171 322 389 307 425 237 377 285

2012 A+ A+ A+ A+ A+ A+ A A+ AAAAA+ A+ A A A AAA+ AA A+ A A AAAAA+ AAAAA+ AAA A+ AAA+

2011 AA+ A A+ A+ A+ A+ A+ A+ AAA+ A AAA A AA AA AA A+ A+ AAAAA+ AAAAA+ AAA+ A A+ A+

39

2012 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304

2011 Name 308 Sarasin 339 BCP 325 IDBI Bank Limited 222 Coutts 353 BT Financial 381 Guoco Group 213 SNS Real 289 Waddell & Reed 328 AmeriCredit 333 ASB Bank 267 Sydbank 219 Thanachart 357 Huatai Securities 332 Provident Financial 322 DenizBank - Mizuho Banque Prive Edmond de 418 Rothschild S.A. 283 Pusan Bank 427 Laurentian Bank - Henderson Group 458 Samsung Securities 386 Everbright Securities 373 Rosbank 276 Mizrahi Tefahot 282 M&I 318 Commercialbank 273 Credem Bank of the Philippine 369 Islands 331 BankMuscat 441 OMC Card 306 Mashreq 358 Basler Kantonalbank

2012 303 294 293 289 289 286 285 284 282 281 280 279 279 278 274 272 270 262 260 260 259 258 258 257 257 256 254 253 252 249 249 247

2011 340 294 309 555 273 243 607 374 306 297 421 581 266 297 317 215 384 210 188 240 246 397 385 322 401 255 300 200 346 263

2012 A AAAAAA+ A+ A AAAA AAAAA A A+ A+ A A A+ A+ A A AAA A+ A A+ A AAAA A A+ A+

2011 A AAAAAA+ A+ AAAAA A+ AAA A A+ A+ A A+ A+ A AABBB AAA AAA AA AA AAAAA40

2012 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335

2011 Name 329 ADIB 260 NYCB 414 Inbursa 292 Ahli United Bank 375 RAKBANK 338 Van Lanschot 290 Qatar Islamic Bank 383 Credito Valtellinese - Capitec Bank 405 Doha Bank 341 Banco Popular 382 Banco De Oro Unibank Challenger Financial 399 Services Group 395 Metrobank 362 Bank BPH - Gulf Bank 299 iberCaja 265 ESFG 312 Commerce Bank 340 The Bank Of Fukuoka 239 Sparkasse KlnBonn 348 Federated Nanjing City Commercial 413 Bank 334 BBK 196 Clariden Leu 391 Central Bank if India 407 First Niagra - Mackenzie Investments 460 Bank of Kyoto Banco do Nordeste do 324 Brasil 433 BGC Partners

2012 247 245 242 242 241 241 240 239 239 239 238 238 237 236 235 234 233 233 227 226 226 225 225 224 224 221 221 221 220 220 220

2011 305 445 219 366 245 295 368 241 224 294 241 234 235 260 357 428 334 294 511 280 219 296 681 237 223 187 310 206

2012 A A+ A+ AA A+ A+ A+ A A A+ AAAA A AAA A A AA+ A AA A+ AAAA+ A+ A A+ A A

2011 A A+ A+ AA AA A+ AAA+ A+ A+ AA AAAA A+ AAAA AAA AAAAA AAA A+ A A

41

2012 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367

2011 Name 423 Gunma Bank - Indian Bank 417 Taiwan Cooperative Bank 179 Caixa Catalunya 371 EON Bank 321 GETIN 310 Synovus 354 Acom 378 Och-Ziff 345 Luzerner Kantonalbank 281 People's United Bank 403 WestLB 221 Fannie Mae 313 EFG International sterreichische 384 Volksbanken 394 Allahabad Bank 316 Saitama Resona Bank 355 Pravex Bank 336 City National Bank 274 BEKB | BCBE 393 Mercantil 233 Northern Rock 372 Tullett Prebon 398 Suruga Bank 380 UnionBanCal Corp 280 Kazkommertsbank 422 Nelnet - BRD 397 Janus 479 Clydesdale Bank - Bendigo Bank 450 Corporation Bank

2012 218 218 218 217 217 216 215 215 215 215 213 212 211 210 206 205 204 204 203 203 203 202 201 201 200 199 199 198 197 197 196 196

2011 212 216 761 254 318 337 272 244 288 385 230 561 333 240 235 324 271 295 400 236 525 249 234 244 389 213 235 178 193

2012 A+ A A+ A A+ A AAA A A+ A+ A AA AA A A+ AAA+ A+ A A A+ AAA+ A+ A AAAAA AA-

2011 A A+ A A+ A AA AA AAA+ A+ AA A+ A+ A A+ AAAAABB AA+ AAAA AAAAA A+

42

2012 368 369 370 371 372 373 374 375 376 377 378 379 380 381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 396 397 398 399

2011 Name 2012 238 Hudson City Savings Bank 196 211 Bank of Cyprus 195 419 Nishi-Nippon City Bank 195 478 Yorkshire Bank 194 - Partners Group 192 412 Joyo Bank 191 400 Bank Millennium 190 351 Banco Pastor 188 - Grupo Security 188 212 Daegu Bank 187 - Jaccs 187 420 Fortress 186 462 SVB Financial Group 186 374 Banca Carige 185 - Ecobank 184 376 Power Finance Corporation 184 377 Union Bank of India 183 319 FIBA 183 - Hancock Bank 183 - Canadian Western Bank 182 385 Banca Fideuram 182 451 Andhra Bank 182 485 Woori Financial Group 1,336 - NAB 4,160 Fidelity | National 425 179 Financial - RMB 179 434 Wing Hang Bank 179 367 Sapporo Hokuyo Holdings 177 457 The Shiga Bank 177 St Galler Kantonalbank 470 176 Reg. 436 Burgan Bank 175 390 GFI 175

2011 512 616 215 178 219 234 274 614 215 186 246 244 244 319 240 190 174 4,176 211 206 258 189 183 203 238

2012 A+ AA A+ AAA+ A A A AA A AAA A A A A AA+ A+ A+ A+ A+ AA AA+ AAA A A+ AA A+

2011 AA AAAA+ A A A A AAA AA A A+ A A A+ A+ A+ AAAAA A A+ AAAA A+

43

2012 400 401 402 403 404 405 406 407 408 409 410 411 412 413 414 415 416 417 418 419 420 421 422 423 424 425 426 427 428 429 430

2011 Name 388 Ural-Siberian Bank 415 Zagrebacka banka 439 VB Banka 379 Webster Bank Chang Hwa Commercial 440 Bank - AGF Management - GAM 389 Daewoo Securities 344 Indian Overseas Bank - Bank of Queensland - Orient Corp 361 First Bank of Nigeria 271 Guaranty Trust Bank Commercial International 426 Bank 421 Seven Bank 471 BancorpSouth 368 Frost Bank 347 Associated Bank - Sinar Mas Multiartha 359 East West Bank 431 Umpqua Bank 472 The Hachijuni Bank 305 Banca Popolare di Vicenza 408 A+ Financial Services 232 Alpha Bank 428 Union National Bank 464 Aareal Bank - Banesco Banco Universal 491 SpareBank 1 SR-Bank Oriental Bank Of Commerce 480 TransCreditBank

2012 174 174 174 173 173 172 172 172 172 171 170 170 169 169 168 168 168 168 167 167 166 165 164 164 163 162 162 161 161 161 161

2011 238 218 201 244 201 238 290 261 407 210 215 182 255 284 262 209 180 347 222 527 209 186 172 178

2012 AA A A+ AAA A A A AAAA+ AA AAA A+ AAA+ AAAAA A+ AA AAA+ A+ A A A AA-

2011 AA A+ AAAAA A+ A+ AA AA+ A AAAA A+ AA AA+ A+ AA AAAAAAA+ AA44

2012 431 432 433 434 435 436 437 438 439 440 441 442 443 444 445 446 447 448 449 450 451 452 453 454 455 456 457 458 459 460 461

2011 Name 432 Wilmington Trust 492 Evercore Partners 387 Bank Audi - Nomos-Bank - VietinBank 410 ABC Bank 500 The Hiroshima Bank - WGZ Bank 250 Coface 453 Bank ZENIT Fulton Financial 447 Corporation 107 Dexia - Juroku Bank 456 Banco Galicia - Corficolombiana - IOOF International Personal Finance - ICG - ABG 293 Piraeus Bank 350 Banca Popolare di Sondrio - Hyundai Securities - First Republic Bank Banque Populaire du Maroc - World Acceptance 490 Valley National Bancorp 409 Tradition 445 Ogaki Kyoritsu Bank 488 JSC Bank CenterCredit - Momentum - Zenith Bank

2012 160 160 160 159 159 159 158 157 157 157 156 156 155 155 155 155 155 155 153 153 153 152 152 152 149 149 148 148 148 148 147

2011 208 171 240 220 167 467 190 196 1,553 189 361 276 173 222 197 174 -

2012 A A+ A+ A A+ A+ A A A A+ AAA A AAAA A+ A+ A A+ AA A A A AAAA A+ A+ A+

2011 A+ A+ A+ AAA A AAAAA+ AA+ A+ A AABBB A A+ 45

2012 2011 Name 2012 462 - Bank BTN 147 463 467 FirstMerit Bank 146 Oldenburgische 464 438 145 Landesbank 465 - UCO Bank 144 466 396 Zions Bancorporation 142 467 468 UMB 141 468 489 Trustmark National Bank 141 469 366 Cetelem 139 470 497 Vozrozhdenie Bank 138 471 - Ellerines 138 472 - Changjiang Securities 138 473 302 Marfin Popular Bank 137 Intergroup Financial 474 137 Services 475 469 Hokuhoku Financial Group 136 476 - Getinoble 136 477 - Syndicate Bank 136 478 437 Bank of Hawaii 135 479 - BTPN 135 480 475 MLP 134 481 - Mirae Asset Securities 134 482 - Ashmore 132 483 - Banca Transilvania 132 484 - Banco CorpBanca 131 485 - Shriram 130 486 435 The 77 Bank 129 487 - Home Capital Group 127 488 - Republic Bank 127 489 - KBW 127 490 - The Iyo Bank 126 491 - Banco de Occidente 125 492 365 BPI 125 493 - Panin Bank 123

2011 184 201 235 184 173 259 168 351 183 203 180 204 193 -

2012 A A AA AAA AAA+ A A+ A A+ A A AA A+ A A A A A+ A AA+ A A+ A A+ A A+ A

2011 A A+ AAA AA A+ A+ AAA AAA A+ AA46

2012 2011 Name 494 442 Kredyt Bank 495 - Tong Yang Securities 496 430 The Chugoku Bank 497 - F.N.B. Corporation 498 - United Bank for Africa 499 - Aozora Bank 500 - Masraf Al Rayan

2012 123 123 121 121 121 121 121

2011 200 209 -

2012 AA A A A A+ A

2011 A A+ -

Brand ratings
These are calculated using Brand Finance's randeta analysis which benchmarks the strength, risk and potential of a brand, relative to its competitors, on a scale ranging from AAA to D. It is conceptually similar to a credit rating. The data used to calculate the ratings comes from various sources including Bloomberg annual reports and Brand Finance research.

Brand ratings definitions:

AAA -- Extremely strong AA -- Very strong A -- Strong BBB-B -- Average CCC-C -- Weak DDD-D -- Failing

Valuation date: All brand values in the report are for the year ending December
31, 2011.

Source: http://brandirectory.com/league_tables/table/banking-500-2012

NOTE: It is interesting to note that Banks from the BRIC countries made up 7 of the years 20 most valuable banking brands, representing more of the top performing brands than Europe. Despite losing 16% of its brand value this year, the most valuable BRIC banking brand was Bradesco of Brazil; which was also

47

he highest rated BRIC based bank as AAA- Beyond the exchange in its comebase of Sao paolo, the bank is listed on the New York and Madrid stock exchanged, which seeks to its global ambitions. Only 5 Brazilian banks were ranked in the 500 most valuable brands, but two of these ranked every highly, with Bradesco by riwal Itan in this years top 20. Loosely following Bradesco in brand value is China construction Bank. As four of Chinas Big four late-owned banks ranked among the top 20 global banking brands. Agricultural Bank of China posted a 7% increase in brand value, while China construction, Bank of China and ICBC all saw their brand value decline. The Chinese banks all have any low brand values compared to their huge size, which indicates that they have not been able to coverage their brand strength as successfully as European rivals. Overall 24 Chinese bank brands placed on the table. India was the only BRIC nation without a banking brand placing in the top 20, with the highest rated Indian Bank brand State Bank of India Placing 9 th and second placed ICIC sitting at 102nd. Overall, 22 Indian banking brands made the table. Most of them in the 300s and above. Like the Chinese banks, Indian banking brands represented small fraction of their market capitalization. The Indian Overseas bank, which had the highese brand blue/market capitalization ratio among the Indian banks had a brand worth only 15% of its market capitalization. The compares to 22% for HSBC of % for Barclays. The most valuable Russian banking brand is state controlled soonbank, which was this years 17th most valuable banking brand in the world. It is pellucid from the above table depicting Top 500 Most Valuable Banking Brands that Indian Banks though may not be bankers to the world but they certainly have improved their position due to strict regulatory regime by Reserve Bank of India in the worst recession for the global banking industry. There are 20 Indian banks in the Brand Finance Global Banking 500, an annual international ranking by UK-based Brand Finance Plc, this year. In terms of assets, SBI was the worlds 70th largest bank in 2009, but due to global financial crises, several big daddies collapsed paving way for the sound and resilient Indian banks in the Top 500 list. SBIs brand value more than tripled to $4,551 million, up from $1,448 million in 2009 helping it grab the 36th spot in the list. On the other hand, ICICI Bank Ltd, the largest private sector lender was at the 110th position in 2009, joined in the top 100 list with 130 % jump in brand value. HSBC retained its top slot for the third year in a row. The number of Indian banks in the global list had more than tripled last year to 19 from six in 2007 but still, as was the case last year, the Asian top 10 banks are dominated by Chinese banks with the gap

48

between the major Chinese banks and the rest widening (The Economic Times, February 1, 2010).

Consolidation of public sector banks grasses for the elephants

Some time in January2005 the Finance Minister called the Chairmen of the public sector banks and told them that they must immediately act to merge their banks and reduce the number of public sector banks to just four. Also they were told to write off their NPAs (Non-performing Assets; or money loaned to big business and not paid back) fast. The entire purpose was to make the banks viable for foreign take-over. Along with the rethink on the question of FDI in banking, the government has been emphasizing the need for consolidation of Indian banks. On September 9, 2004 speaking after a meeting with chief executives of public sector banks (PSBs), Union Finance Minister P. Chidambaram spoke of the governments plans to review the legislation that would enable consolidation among PSBs. Specifically, he promised that the Union Budget of 2005 would provide tax incentives for profitable PSBs that merge. PSBs must grow "in scale and muscle" to compete effectively with "world class banks". Clearly, not all were in agreement. The Reserve Bank had expressed no immediate need for consolidation of PSBs, and though the Committee on the Financial System (RBI) in its sweeping denunciation of the past performance and past strategy of Indian banking in 1991 had recommended a policy of bank consolidation as a performance enhancing measure, the Reserve Bank in the subsequent years maintained its preliberalization strategy of directing mergers on a case by case basis. Mergers and acquisitions in the banking sector in India occurred because of the need to restructure weak banks which were entirely supported and directed by the GOI and the RBI. Thus the present announcement is another example where the Central Banks cautious stance has been overruled by the ambitious Finance Ministry. The need to compete effectively with world class banks asserted in the Finance Ministers speech cannot possibly refer to operations in overseas markets, since the Indian banks are still too small both in terms of size and range of operations and products necessary to compete internationally. What perhaps the profitable Indian banks could at most hope for in the near future is to service the Indian diaspora and the international operations of Indian corporates. The talk of taking on the global majors is therefore arguably on Indian soil where the government is adopting a paradoxical policy of, on the one hand, pushing for consolidation of PSBs for fear of competition from world-class banks, while simultaneously soliciting more FDI into banking. The governments fear that international
49

banks could out-compete domestic banks and ultimately take control of economy-wide banking assets is real. But precisely for these reasons there is need to restrict and discourage banking FDI. The travails of the Japanese banks rapidly losing market share to US and European banks, despite massive consolidation of the domestic financial institutions is too stark to be ignored. Within a decade the market value of Japanese financial firms, many of which used to operate globally, have halved while the US and European financial firms have observed a near ten-fold increase in market value. The centralization of wealth consequent to the globalization of finance emerges most sharply from this evidence. If Japan could reach such a state of crisis, how can the Indian banking sector whose largest bank State Bank of India is not even one-tenth in size of the ninth largest bank in the world hold its ground against the transnational titans?

A large number of studies have examined the impact of M&A driven consolidation on bank costs in different contexts.
Contrary to popular notion that sees efficiency improving with size, academic studies find no evidence of mergers improving cost efficiency on average. Efficiency effects are also weak in European bank mergers. Thus mergers automatically need not lead to lower costs, greater efficiency or create stronger banks. On the other hand, it might lead to loss of employment for many and massive adjustments for other staff members who might be relocated to another branch, a different geographic location and into a new line of banking. On papers M & A sound attractive but in real world synergies dont materialize. Since each corporation has distinct work culture it is not easy task for the board, management and workers to work cohesively in the aftermath of mergers. Often dis-synergies (such as loss of customers and difficulties in reconciling different service terms) only can be anticipated after mergers. The Japanese case is the most telling example of size failing to solve banking problems. Motivated largely by distress, Japans large banks have been engaged in a series of defensive mergers, accompanied by government assistance in unloading bad debt. These bigger is better mergers did not resolve the problems: gains in microeconomic efficiency were minimal, and these banks inability to lend compromised any possible economic recovery.

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A decade into the post-bubble adjustments, virtually all large Japanese banks have been merged or suggested for merger. In a study, ASSOCHAM assumed that if all 27 public sector banks are merged, their capital base would be just $3 billion, which stands nowhere against the capital base of $20 billion of a single entity in China Industrial Commercial Bank of China.

Going by the comparative figures that are available of US even as of 2005, if we add up today figure of Nationalized Banks India with US even merger of 19 nationalized banks is not going to create a new entity of international status. The tier I capital of JP Morgan Chase, HSBC, Deutche Bank for instance stands at 2,31,670 lacs, 13,300 lacs, 2,73,020lacs. The combined assets in the year 2000 of top 10 banks in the world Rs. 5,96,77,620 lacs which is bigger than GDP of either Korea, 60,53,310lacs, India 59, 89,660lacs or Australia 5,18, 332 lacs. The revenue of City corps Rs. 9,47,130 lacs, is larger than GDP of Singapore which is 9,13,420lacs. The profit of city corp is 1,78,530 lacs is larger than Combined GDP OF Nepal, Cambodia, Fiji, Laos, Mongolia viz 1,56,090 lacs.

Comparison with Chinese banks

In terms of size, Bank of China is the 11th largest bank in the world, while SBI occupies the same position in Asia. Globally, however, SBI is 93rd. In terms of asset base, Bank of China is over four and a half times bigger than SBI. Last year, it had an asset base of $516 billion against SBI's $110 billion (at an exchange rate of Rs 45.77 a dollar). When it comes to Tier I capital (that is, equity and reserves) -- another parameter to ascertain a bank's size and its risk-taking ability -- Bank of China is again bigger than SBI. Last year, its Tier I capital was $34.8 billion against SBI's $5.8 billion. Bank of China is actually marginally smaller than the entire Indian banking industry. Last year, the collective Tier I capital of 77 Indian banks -- 26 public

51

sector banks (2005-06 balance sheet of Punjab & Sind Bank is not yet available), 24 private banks, and 27 foreign banks operating in India -- was $33.7 billion. The overall asset base was $533 billion. The top four banks in China, which also hold the top four slots among Asian banks, had a Tier I capital of $95 billion -almost three times the capital base of the entire Indian banking industry. Similarly, the asset base of the four was $2,095 billion, almost four times that of Indian banks'. The list could go on and on. Hence the claims of the champions of merger moves are utterly unrealistic and hallow and the same deserve to be treated contemptuously as the Top TNC banks can gobble up even if 19 banks and SBI are merged into singly entity. In Annexure I we have given the list of bank mergers in United states, so that one can gauge the gigantic magnitude of assets size after mergers and arrive at right conclusions that arguments for consolidation moves advocated by the FM are preposterous Riding on this euphoria of up-gradation of banking services, some policy makers are dreaming of evolving giant size banks by consolidation; and of making such banks globally competitive. It is a moot point whether efficiency in banking is size neutral or whether there are indeed economies of scale. There is already evidence in India as well of the futility and even the dangers of consolidation.

Indian evidence
In the last few years, the Indian public sector banks have been able to raise their profitability substantially. While the real costs of these apparent gains in terms of the real economys needs are what this report seeks to underline, it cannot be denied that PSBs when judged by corporate performance parameters have recorded substantial improvement. In the present circumstances, where the banks are able to book profits normally and an increasing proportion of the banks are tapping the capital markets to strengthen their equity base, most observers find it difficult to comprehend the need for PSB mergers. There are absolutely no domestic compulsions for consolidation of public sector banks. Secondly, the Indian evidence of the post-liberalization era doesnt uphold that bigger size confers greater efficiencyi.e. consistently, higher levels of profitability.

52

 Against the backdrop of a challenging environment,SBI announced that Net Profit of the Bank increased by 41.66% from Rs8,265 crores in FY''11 to Rs 11,707 crores in FY''12, one of the highest net profits earned by any corporate in the country. Operating Profit for your Bank crossed Rs30,000 crores mark, rising by 24.62% to Rs31,574 crores in FY''12 from Rs25,336 crores in FY''11, indicating that core operations remain robust. Even the new generation HDFC Bank, very small compared to ICICI Bank has shown up commendable performance over the years. One of the aspects of mergers that is often underplayed when expecting a cost efficiency improvement is the problem of compatibility of the cultures and systems and people of the merged entity. As it were, these are going to be real problems, even if the employed workforce can be slashed heavily, a probability not unforeseen for Indian PSBs. The RBI deputy governor has rightly sounded a cautionary note in this regard: As we have seen in the past, in any merger integrating the manpower and culture of the taken over bank with manpower and culture of the host bank proves to be a great challenge. It is only when integration in these aspects is achieved successfully that the merged entities will be able to capitalize on the synergies. it will be necessary to ensure that mergers are successful in all respects, including manpower and cultural aspects which are unique in the Indian context. Therefore the present talks of merger in the banking Industry by Government is to implement the recommendations of Narsimham Committee Report, in a manner it has been suggested, i.e. merger of the Public Sector banks are expected to emanate from the managements of the banks with the Government. On shareholder playing a supportive role and to achieve the objectives laid down by this committee particularly the rightsizing of staff and closure of branches in the name of rationalization. The above quoted recommendations of Narsimham Committee report (April1998) reveal the real objective of the Govt. regarding merger of Public sector banks. Such mergers will provide market for private sector banks, promote privatization in banking industry, change mass banking to class banking, reinforce the merged public sector banks to absorb shock given by corporate loans becoming NPA, help corporate capital , finance capital , foreign capital and multinational capital to promote their business interest and to increase their super profit and ultimately will restrict the flow of credit to much starved agricultural sector , SME sector , employment generation programme and to fulfill the social objectives for which banks were nationalized It will create job redundancy and ultimately workforce
53

will loose tier jobs . Mergers of Public Sector banks will only serve the corporate capital and cut down the growing need of credit to priority sector including agriculture and SME sector. Most of the Public Sector Banks are doing well in almost all parameters i.e. deposits, advances, net profits, return on assets, return on net worth, earning per share, capital adequacy ratio, net interest margin cash income ratio, recovery of non performing assets and /or on NPA management, advance to agriculture, small-scale industry and other priority sectors. Despite that the FM has been provoking and insisting the public sector banks chiefs that pubic Sector Banks will be reduced to small entities if they do not consolidate. The relationship of profitability of banks (defined as net profits to asset ratio) with their total asset size has been estimated for scheduled commercial banks for the period 1991-2 to 2003-4 by Bagchi and Banerjee (2005). The results indicate that the coefficient of asset size is negative insignificant even at 10 per cent level, which leads to the conclusion that total asset size had no systematic impact on the profitability ratios of the Indian scheduled commercial banks. Another study by T.T Ram Mohan, Associate Professor and Chairman, Finance & Accounting Area, Indian Institute of Management, Ahmedabad and Subhash C Ray, Professor, Department of Economics, University of Connecticut corroborates the high performance and efficiency of Pubic Sector banks We have compared efficiency and productivity of PSBs relative to private sector banks, both domestic and foreign. This comparison is attempted over a nine year period (1992-00), out of which eight years belong to what might be called the post-deregulation period, if we use the generally accepted year of 1992-93 as the cut off date for the big push in bank deregulation. Our results are interesting given the general belief that deregulation would expose the inefficiencies inherent in government ownership and result in a huge gap between private banks and PSBs. This has not happened. We are unable to uncover any significant differences in productivity growth and efficiency between the public and private sectors in the period under study. PSBs are clearly superior to private sector banks but there is no difference between them and foreign banks. The results accord with known facts about the financial performance of PSBs. PSBs have higher costs than private sector banks but they do better on a key revenue parameter such as spread. The question we ask in revenue maximization is: how well is a bank doing, given its cost base? Not surprisingly, PSBs are seen to do better than private sector banks. India's public sector banks (PSBs) are compared unfavourably with their private sector counterparts, domestic and foreign.
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This comparison rests, for the most part, on financial measures of performance, and such a comparison provides much of the rationale for privatisation of PSBs. In this paper, we attempt a comparison between PSBs and their private sector counterparts based on measures of efficiency and productivity that use quantities of outputs and inputs. Efficiency measures a firms performance relative to a benchmark at a given point in time; productivity measures a firms performance over time. Both measures are relevant in attempting a comparison between the private and public sectors. We employ three measures to measure efficiency. We attempt these comparisons over the period 1992-2000, comparing PSBs with both domestic private and foreign banks. Out of a total of six comparisons we have made, there are no differences in three cases, PSBs do better in two, and foreign banks in one. To put it differently, PSBs are seen to be at a disadvantage in only one out of six comparisons. It is difficult, therefore, to sustain the proposition that efficiency and productivity have been lower in public sector banks relative to their peers in the private sector. It is possible to speculate on why this is so. One explanation could be that there has been a change in orientation in PSBs from social objectives towards an accent on profitability, especially given that some of these have come to be listed on the exchanges and have private investors. Another is that PSBs enjoy a huge advantage in terms of scale of operations over private sector banks and these advantages offset any inefficiencies that could be ascribed to government ownership. Even the series of stress tests conducted by the Reserve Bank in respect of credit, liquidity and interest rate risks showed that banks remained reasonably resilient. However, under extreme shocks, some banks could face moderate liquidity problems and their profitability could be affected," Indias central bank concludes in its annual I report titled Trends and Progress of Banking in 2011-12. The report states that "the financial system of the country remains robust, even though the risk to stability of the system is rising on the back of global and domestic macroeconomic factors". However, despite the rising impairment of asset quality, "the resilience of the banking sector was manifested in an improvement in the capital base and maintenance of profitability".
Since 1969, we have been witnessing Bank mergers and acquisitions, mainly because of the failure of private sector banks as quoted in the earlier paragraphs of this report. Mergers and acquisitions were done in public interest and to save depositors. Most of the private Sector banks, which could

55

not survive, were bailed out by Public sector Banks. The following list will reveal the merger phenomena in banking Industry since 1961.

Number of forced and voluntary mergers from 1961-2006 TABLE A

Duration (1961-1968) Pre-nationalization (1969-1992) Nationalization (1993-2006) Post-reform

Number of Mergers 46 13 21 13 5 2 1 80

Forced Mergers Market driven Mergers Convergence of Financial Institutions into Banks

Regulatory Compulsions Total number of mergers

(Source: Compiled from various publications of RBI) LIST OF BANKS IN INDIA MERGED FROM 1961-2009 TABLE B
S.No. 01 02 03 04 05 06 07 08 09 10 11 Name of Bank Merged (Transferor Bank) Prabhat Bank Ltd Indo-Commercial Bank Ltd Bank of Nagpur Ltd New Citizen Bank Ltd Travancore Forward Bank Ltd Bank of Kerala Ltd Bank of Poona Ltd Bank of New India Ltd Venadu Bank Ltd Wankaner Bank Ltd Seasia Midland Bank Ltd Merged / Amalgamated with (Transferee Bank) National Bank of Lahore Ltd. Punjab National Bank Bank of Maharastra Bank of Baroda State Bank of Travancore Canara Bank Sangli Bank Ltd State Bank of Travancore South Indian Bank Ltd Dena Bank Canara Bank Date of Merger / Amalgamation 09/03/1961 25/03/1961 27/03/1961 29/04/1961 15/05/1961 20/05/1961 03/06/1961 17/06/1961 17/06/1961 17/06/1961 17/06/1961
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S.No. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Name of Bank Merged (Transferor Bank)

Merged / Amalgamated with (Transferee Bank) State Bank of Travancore Bank of Maharastra Sangli Bank Bank of Maharastra Indian Bank United Bank of India Syndicate Bank Syndicate Bank Tanjore Permanent Bank Ltd United Bank of India Canara Bank United Western Bank Ltd Syndicate Bank Sangli Bank Ltd Central Bank of India Canara Banking Corp.Ltd Laxmi Vilas Bank Ltd Syndicate Bank Lakshmi Commer. Bank Ltd State Bank of India Indian Bank Indian Bank State Bank of Travancore Karur Vysya Bank

Kottayam Orient Bank Ltd Bank of Konkan Ltd Poona Investors Bank Ltd Bharat Industrial Bank Ltd Rayalaseema Bank Ltd Cuttack Bank Ltd Pie Money Bank Pvt. Ltd Moolky Bank Ltd Merchants Bank Ltd Tezpur Industrial Bank Ltd G.Raghunathmull Bank Ltd Satara Swadeshi Commercial Bank Ltd Catholic Bank Ltd Phaltan Bank Jodhpur Commercial Bank Ltd Bank of Citizen Ltd Karur Mercantile Bank Ltd People Bank Ltd Pratab Bank Ltd Unity Bank Ltd Bank of Algapuri Ltd Metropolitan Bank Ltd Cochin Nayar Bank Ltd Salem Shri Kannikaparameshwari Bank Ltd. 36 Unnao Commercial Ltd 37 Latin Christian Bank Ltd 38 Southern Bank Ltd 39 Shri Jadeya Shankarling Bank Ltd 40 Bareilly Bank Ltd 41 Thya Bank Ltd 42 Allahabad Trading & Bkg.Corp. 43 Vettaikaran Padur Mahajan Bank Ltd 44 Malnad Bank Ltd 45 Josna Bank Ltd 46 Amrit Bank Ltd 47 Chawla Bank Ltd Banks Amalgamated / Merged since 48 Bank of Bihar Ltd

Date of Merger / Amalgamation 17/06/1961 19/06/1961 28/06/1961 01/07/1961 01/09/1961 04/09/1961 04/09/1961 04/09/1961 04/09/1961 04/09/1961 04/09/1961 06/06/1961 11/19/1961 11/09/1961 16/01/1961 17/10/1961 19/10/1961 14/11/1961 11/12/1961 20/08/1962 14/08/1962 14/08/1962 08/02/1964 01/06/1964

Bareilly Corporation Ltd 12/08/1964 State Bank of Travancore 17/08/1964 United Industrial Bank Ltd 24/08/1964 Belgaum Bank Ltd 26/10/1964 Benarus State Bank Ltd 16/11/1964 Lord Krishna Bank Ltd 16/11/1964 State of India Ltd 01/09/1965 Bank of Madura Ltd 01/09/1965 State Bank of Mysore 06/10/1965 Lord Krishna Bank Ltd 13/10/1965 State Bank of Patiala 03/02/1965 New Bank of India 23/04/1969 Nationalisation of Banks in India State Bank of India 08/11/1969
57

S.No. 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77

Name of Bank Merged (Transferor Bank) National Bank of Lahore Ltd Miraj State Bank Ltd Lakshmi Commercial Bank Ltd Bank of Cochin Ltd Hindustan Commer.Bank Ltd Traders Bank Ltd United Industrial Bank Ltd Bank of Tamilnadu Ltd Bank of Thanjavur Ltd Parur Central Bank Ltd Purbanchal Bank Ltd New Bank of India Bank of Karad Ltd Kashi Nath Seth Bank Punjab Co-op.Bank Ltd Bari Doab Bank Ltd Bareilly Corp.Bank Ltd Sikkam Bank Ltd Times Bank India Benaras State Bank Ltd Nedungadi Bank Ltd Bank of Madura Global Trust Bank Ltd Bank of Punjab United western bank Ltd. Bharat Overseas Bank Ltd Sangli Bank Ltd Lord Krishna bank Ltd Shri Suvarana Sahakari Cooperative Bank Ltd.

Merged / Amalgamated with (Transferee Bank) State Bank of India Union Bank of India Canara Bank State Bank of India Punjab National Bank Bank of Baroda Allahabad Bank Indian Overseas Bank Indian Bank Bank of India Central Bank of India Punjab National Bank Bank of India State Bank of India Oriental Bank of Commerce Oriental Bank of Commerce Bank of Baroda Union Bank of India HDFC Bank Ltd Bank of Baroda Punjab National Bank ICICI Bank Oriental Bank of Commerce Centurion Bank IDBI Ltd. Indian Overseas Bank ICICI Bank Centurion bank of Punjab Ltd Indian Overseas Bank

Date of Merger / Amalgamation 20/02/1970 29/07/1985 24/08/1985 26/08/1985 19/12/1986 13/05/1988 31/10/1989 20/02/1990 20/02/1990 20/02/1990 29/08/1990 04/09/1993 1993-1994 01/01/1996 08/04/1997 08/04/1997 03/06/1999 22/12/1996 26/02/2000 20/07/2002 01/02/2003 10/03/2003 14/08/2004 29/06/2005 03/10/2006 01/04/2007 19/04/2007 29/08/2007 19/05/2009

Disregarding these historical trends of bail off of private sector banks by public sector banks and studies in support of performance and efficiency of the PSBs by experts quoted above, time and again FM through media and in person has pressurized timing with last General Election to Loksabha the chief of Public sector banks to create a favorable atmosphere through a dictated national debate in the media on the subject. Being inspired or to please or appease the FM, recently 3 banks i.e. Oriental bank of commerce, Indian bank and Corporation
58

bank, have formed an OIC association in the name of strategic alliance to share each others market, assets, business, branches, technology etc. MOI has been signed with detailed guidelines for functioning and operating as one entity. The coverage of the MOI is

1) Building a common payment system 2) Sharing IT resources 3) Sharing treasury resources 4) Foraying capital market and international and other financial ventures 5) Bank assurance 6) Business syndications and sharing 7) Sharing training resources 8) Common procurement of IT and other assets wherever feasible etc.
Now timing with election 2014 The Finance Ministry preparing the ground for consolidation among public sector banks (PSBs)? Its recent missive to the 26 PSBs seems to suggest so. The Ministry said there is a need for continuous interaction between these banks to improve their functioning. This can be achieved by sharing experiences and lessons learnt which in turn will help fine-tune internal policies and procedures. Seven large PSBs State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Bank of India (BoI), Union Bank of India, Central Bank of India and Canara Bank have been assigned the responsibility of co-ordinating the activities of 19 other PSBs in six specific areas of operation. The areas of operation with scope for functional improvement human resources, business process re-engineering, e-governance, internal audit for fraud detection and protection, recovery, and asset-liability management. The 26 banks have been divided into seven groups. SBI has been given the responsibility of co-ordinating the functioning of its five associate banks. PNB is the co-ordinator for Dena Bank and Vijaya Bank, BOB for IDBI Bank and UCO Bank, BOI for Oriental Bank of Commerce and Andhra Bank, Union Bank of India for United Bank of India and Punjab & Sind Bank, Central Bank of India for Indian Bank, Allahabad Bank and Bank of Maharashtra, and Canara Bank for Indian Overseas Bank, Syndicate Bank and Corporation Bank.

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The group coordinators of the banks would interact with the Ministry on a quarterly basis. It may be pertinent to note that the RBI-appointed Narasimham Committee on Banking Sector Reforms had, in 1998, recommended restructuring of the domestic banking system. The committee recommended that the banking landscape should evolve in such a way that there should be three to four large banks, which could become international in character, and eight to ten national banks and local banks confined to specific regions. Rural banks, including Regional Rural Banks, are confined to rural areas. Though it has been 14 years since the Narasimham Committee report was put together, there has been no serious attempt at consolidation in the public sector banking space. SBI, which has assimilated two of its associate banks State Bank of Saurashtra and State Bank of Indore is the only exception. This is cartelisation in Banking Industry and to develop synergies in functioning and ultimately to take step for merger. It is a prelude to merger. Now banks have also started to explore possibility of forming such alliance. Recently Union bank of India, Bank of India and Infrastructure Development Finance Co. Ltd (IDFC) have formed Loan syndication and lending alliance. They have also committed to work together in international operations, to offer cash management, management services and in training. This is also one form of cartelisation i.e. forming an alliance to deal with a business. These moves are nothing but back door methods of ultimate merger, which will help corporate capital.

BANKING CONSOLDTION UNWRRANTED Danger of Merger of Nationalized Banks

Employees of public sector banks went on a strikes during the period under review to protest against what they feel as forced merger of public sector banks. The UPA government in its earlier term had vigorously advocated consolidation but achieved very little. The only merger of consequence was the takeover by SBI of its smallest associate, the State Bank of Saurashtra. Surprisingly, despite all the talk of mergers and amalgamations, there were few policy inputs. Whatever decisions the government took to speed up individual mergers were ad hoc and mostly prompted by concern for the depositors of a failed institution. Although no further mergers has taken place recently, the subject has been making headlines.

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Despite the apparent Government support to a relatively old idea the Narasimham Committee II (1997) had recommended the creation of four or five mega banks to take on international competition the path towards consolidation bristles with obstacles particularly, in the dominant government owned banking sector. A parallel debate over M&As among private sector banks has been going on. That has been fuelled by the even larger issue of allowing a major role for foreign direct investment (FDI) in Indian banking.

Only theoretical gains

After a period of relative quiet, the subject of consolidation in the Indian banking industry is back in focus. While no policy statements have come from either the government or the Reserve Bank of India, reports of a meeting that the chairmen of the five top public sector banks had with officials of the Finance Ministry have evoked renewed interest in the subject. The heads of Punjab National Bank, Canara Bank, Bank of Baroda, Bank of India and Union Bank of India were reportedly asked for their views on consolidation so that a road map could be prepared. No discussion paper, leave alone a major policy announcement on bank mergers, is round the corner. In fact one of the participating Bank Chairman of Punjab National Bank said a few days later that consolidation of public sector banks through mergers would be a long-drawn out affair and that it was vital to convince all the stakeholders before finalizing a merger. The idea of encouraging mergers among banks to create global sized' institutions sounds attractive but may not be the right way to boost capital adequacy. The merged entity's capital will be just sufficient to support the aggregate business. A merger does not necessarily free capital from either of the merging banks. Any of the existing PSBs is unlikely to have spare' capital. Moreover, there are fundamental objections to the merger route.The argument that a merged entity will be in a better position to raise capital than individual banks may not be strictly correct. For PSBs the main argument of the government in favour of growing in size through the M&A route is to take on competition globally. The Government's view on the subject as articulated by the Finance Minister is that "competition, convergence and consolidation" will be the key drivers of the banking industry in the future. Hence PSBs ought to consolidate, a course of action that will also help reap other synergies by reducing transaction costs and foray into new areas. That at least is the Government's position. Unfortunately this position, while theoretically sound, cannot be supported on practical grounds.

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Experience so far with mergers involving one or more PSBs has not been happy. Needless to add, the main prop to such mergers has come from the Government itself, to save the new generation Global Trust Bank for instance. (It was merged with the public sector Oriental Bank of Commerce). This is a merger that was not dictated by market forces .It is not even clear whether the board of OBC arrived at such a decision on their own, however much they may claim to have reached a "win-win" deal in hindsight. A much earlier "forced" merger of New Bank of India with Punjab National Bank created major problems for both. There is plenty of evidence to show that PNB's fortunes were dragged down and, what was perhaps even more damaging, its culture was corrupted. Banks, including those in the government fold, have a culture and identity of their own which no amount of "standardised " policy diktats could suppress over all these years. The Government's thinking seems to be conditioned by an implicit faith in the "universal banking " model. If PSBs can come together they can offer a variety of services besides commercial banking (or pool together their existing strengths in nice areas). They can truly reach universal banking status with all the attendant advantages in a competitive environment. The idea is deceptively simple but as recent experiences the world over shows is seriously flawed. In a conceptual sense universal banking looks good but when advocated as the end product of a consolidation exercise does not have any argument in its favour. The world's largest banking group viewed under many parameters including profitability is the Citigroup. An outstanding example of a financial services group that grew through M&As, the bank has been asked by the Federal Reserve Board to desist from further acquisitions until it refined its systems and procedures. If a bank such as the CITI, which has been a global force, could be faulted on its basics, there is clearly a message for Indian PSBs to be far more circumspect than what the Government would recommend. Besides, universal banking itself seems to be going out of fashion. In India it is unlikely that banks will be able to impress all their customers across a variety of products. A deficiency in one area, not necessarily its main business, can affect its image disproportionately. Even more damaging is the fact that M&As can bring in disparate cultures that cannot be harmonised simply because of common ownership. The Citigroup has been in the news for all the wrong reasons, with most of the problems emanating from the actions of its investment-banking arm. Those arguing for M&As cannot ignore international developments even if they blithely choose to ride over the largely negative experiences in India.

Elusive synergies
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It is difficult to see synergies accruing from such mergers. For instance, seeking a geographical or cultural fit between two banks is only theoretically possible. All government-owned banks have acquired an all India character even though in their private sector days they have regional in character. A merger will entail duplication of branch network especially in towns and metros. Synergy in technology application will be equally elusive given that the banks are in different stages of technology absorption and use different platforms. A more difficult task is to achieve a cultural fit post-merger. Though all of them are government-owned, each has certain unique cultural strengths that cannot be retained after the merger. In their pre-nationalisation days, some of the banks had affinities with specific business activities and groups. These have continued under government ownership. For instance, Bank of India and Bank of Baroda have had a strong stock market tradition, which has flourished well into their public sector days. There is a real possibility that such strengths will be dissipated after merger with a bank with little exposure to the stock markets.

Human factor
A successful merger implies a reasonably smooth integration of staff and human resources related systems. This will be, by far, the biggest challenge. By their very nature, bank or financial service entities are people-centric. It is not clear whether those who advocate mergers as an easy option are aware of the strengths of such human capital. There are many other reasons why a merger between PSBs will neither be easy nor beneficial.

Bank consolidation: pitfalls of a hasty decision

One outcome of the present global crisis is that large banking monsters have come to be feared. That is why the recent death anniversary of Lehman Brothers drew a barrage of comment. And Lehman wasnt even a bank, it was an investment bank. We worry now not just about large banks but about systemically large financial institutions. Some of the worlds biggest banks, the Citigroup notably, which relied heavily on mergers and acquisitions to grow phenomenally, have been rapped on the knuckles by the regulators and are realising that such stupendous inorganic growth has come at a price.

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In India, there is a revival of the clamour for bank consolidation. The views of finance minister, echoed by chairman of public sector banks wants Indian banks to grow bigger. The chairman of SBI has been quoted as saying: The size of Indian banks is not good enough, we need to consolidate....Even SBI is not large enough to serve Indian corporates. he has suggested that there should be at least two to three banks bigger than SBI and half a dozen banks the size of SBI in the country.. Even if all the 26 PSBs are merged into one single Bank, the total capital will be only $ 3 billion ( Rs. 12,000 crores) whereas Banks like StanChart, HSBC, Citi Bank, etc. operate with a capital of 60 to 70 billion dollars. Further, the fallacy that bigger the size stronger bank has been exposed with the fall of giants like AIG, Lehman Bros.etc. India needs expansion of banking and not consolidation of banks. That apart, the arguments typically made for bank consolidation in India lack substance: Indian banks are much smaller than global giants: True. In 2007, SBI was not even one-tenth the size of the tenth largest bank in the world. But this also means that no amount of consolidation will give Indian banks a global size in the foreseeable future. Our banks need to be bigger in order to meet the needs of large corporates: Why should one bank meet the needs of any large corporate on its own? From the point of view of risk management, consortium financing is preferable. Some large requirements of corporates, such as overseas finance, cannot be met by Indian banks, however large they may become.

The Role of Foreign Capital in Consolidation

Certain key banking topics are back in focus. The ownership issue figured prominently in the budget speeches, during the period under review with a strong indication therein that foreign banks will henceforth also be allowed to incorporate subsidiaries in India. Hitherto, they could only expand in India by opening branches. Only one of the two routes will be allowed but the latest announcement along with a few earlier ones clearly shows the increasing role being afforded to foreign banks and foreign direct investment (FDI). A relaxation in the existing restriction on voting rights of bank shareholders has been contemplated in the budget speech. At present, irrespective of the size of the shareholding no one can have more than 10 per cent of voting rights. Even earlier, there has been a clarification that overseas investors (FDIs) can invest up to 49 per cent of the equity in the private banks although in the case of PSBs it has been restricted to 20 per cent.
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The Government has reiterated its intention to remove the cap on voting rights in banks which will increase the stranglehold of foreign capital on the banks and thereby on the peoples money. The Government somehow wants to delete Section 12 (2) of the Banking Regulations Act to remove the present ceiling of 10% on voting rights of FDI in Banks. There will be unrestricted entry of foreign capital in our Banks and with pro-rata voting rights, they would control our peoples money. It is, therefore, certain that foreign capital will play a role in the consolidation of the banking industry, a development widely anticipated by several experts including the Finance Minister. For the present not many structural changes are on the cards for the public sector banks. But the Government has a medium term goal of reducing its stake in the PSBs to a third. In all the PSBs, however, the Government will hold the majority stake for now. Hence, though FDIs can play a role in the PSBs, the question of their taking control does not arise for now. Not to be forgotten at this point of time most PSBs command pathetic valuations. It will be scandalous to let go control at these levels. It is naive to think that the opposition to bank mergers is confined to trade unions. One should really examine whether the presumed benefits would really accrue. The idea of creating bigger banks to take on competition sounds attractive but one must realise even the biggest among Indian banks are small by global standards. A merger involving banks in the top rung say, SBI, Bank of India and Punjab National Bank will not create a world champion as the merged entity will still be small. The argument that a merged entity will be in a better position to raise capital than individual banks may not be strictly correct. Government-owned banks will have to always reckon with the condition that their majority shareholder will not let its shareholding fall below 51 per cent. Some of the PSBs, including SBI, are near that floor. Other banks may have some leeway, but they too will be soon constrained. A merger between two such entities will not help. Other routes to raise capital such as divestment in India or sale to overseas investors are ruled out for now. It is futile to talk of the government any government for that matter relinquishing its majority stake in the PSBs. Denationalisation cannot have many votaries. The world over, the biggest private banks are seeking the sanctuary of government investment and ownership. In India, government ownership has once again stood the banks in good stead during the financial sector crisis. So for now the only alternative is for banks to receive capital from the government.

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Privatization of banks is a discredited idea the world over at the current juncture, as could be seen in the number of forced mergers with nationalized banks as shown in table A& B above in page . if the nationalized banks had not bailed out the private banks in moratorium in time they would collapsed like cookies bamboozling depositors hard earned savings. The possibility of some foreign buyer acquiring an Indian bank is remote, given the current state of the financial sector abroad. A bill introduced in Parliament some years ago to bring down the government stake to 33.33 per cent in PSBs is languishing even though the then Finance Minister has said that the public sector character of these banks will be maintained post-dilution. Most importantly, the merger advocates ignore the fact that beyond a point size does not increase efficiency. Creating behemoths from two already large banks will not help in either facing competition or raising capital. On the other hand, several more layers will be added to the existing bureaucratic structures in government-owned banks. The Myth of Indian Banks insularity In the middle of 2008 crisis hoarse on the countrys financial system insulated from the economic may hem of World Capitalism C. Rangarajan, Rajya Sabha M P and former Chief of the Prime Ministers Economic Advisory Council claimed that direct contagion effect of the crisis of international financial market will be very small. He added with a false confidence that the exposure of Indian Banks to toxic assets is minimal and is confined to overseas branches of Indian Banks. The facts however, do not corroborate such tall claims. It is a fact that the since 1990s all the governments at the Centre tried to push through banking sector reforms and bank employees consistently resisted the moves over so many years. Riding on the crest of up-gradation of banking service, policy makers have so long tried to evolve giant size banks by consolidation. In the age of imperialist globalization they have argued that such consolidation will make such banks globally competitive. It was simply played down that such mergers would be followed by large-scale closure of branches; besides, lakhs of common people would be denied banking services. With the reforms programme under globalization in the period since 1990 banking sector reforms were followed. Over those years, reforms have acquired, as it were, two basic faces : One, which may be broadly categorized as the Basic face and the other, the Indian face while the former is the most visible, the later came to be visible in the past couple of years. The Basic face refers to the almost mechanistic implementation of Basic norms devised by the Bank for International Settlements (BIS) in the name of upgrading

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the Indian Banking system to international standards. The Indian face clearly refers to reforms in respect of credit, amalgamation, etc.. The reforms in the banking sector faced resistance from the bank employees which could force a go-slow to this effect. If the face market neo-liberalists had their full go, the public sector banks would have merged, consolidated into bigger banks allowing the whole gamut of banking money at the command of big business houses. And the corporates, with lakhs of crores of rupees of public money at their command would have competed in the international market. Not only that they would have enjoyed investing in major US banks and taken money and common investors down the drain as their counterparts are found to have gone the expected way. The reforms in the banking sector, if followed in toto as prescribed by the World Bank, would have also meant handing the real control of the Public Sector Banks over to the directors representing private shareholders. These directors would have been then empowered to appoint executives and decide their emoluments and perquisites, etc. Despite the chorus of protests during the last 15 years, the policy makers have been responsible, for steadily making the banking system corporate contractor centric. The result has been a reprehensible drift towards the corporate houses despite the occasional refrain of ignoring the rural sector. The second Narasimham Committee in its Banking Sector Reforms made it eminently clear: Reforms cannot be entirely painless. The strengthening of the system will take its toll on the weak and inefficient competition is a stern taskmaster and there is no room for laxity. In its lexicon the message was loud and clear Indian Banks have to be competitive with big banks of the world and so the expected downslide has to be tolerated. Thus way back in 2000 itself the giant banks like Citi Bank and Bank of America did command a money power of Rs. 50,16,000 crore in contrast with the incomparably small combined capital of Indian Public Sector banks to the tune of Rs.6,50,000 crore ! Strangely enough in the first report of Narasimham it was stated with high expectation.. It is a figment of imagination that economically weak Indian banks will ably compete with giant foreign banks. Liberalization theorists argued in the same fashion to make room for MNCs to grab the Indian market. In the same report, policy decision was advised to make Indian public sector banks become hostage to the whims of foreign financial tycoons. It said At present, the laws stipulate that not less than 51% of the share capital of Public Sector Banks should be rested with government and similarly not less than 55% of the Share Capital of the State Bank of India should be held by the Reserve Bank of India. The Committee believes that the minimum stipulations should be reviewed. It would suggest that the minimum share-holding by Government / Reserve Bank in the equity of nationalized Banks and State Bank should be brought down to
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33%. Thus it made it clear how to weaken the State controlled banks in order to invite multinational banks in India. As the reforms programme in all sectors of Indian economy is meant for recolonization of Indian economy and creating a small privileged class as beneficiaries so long as foreign banks made large scale inroads while bank loans were geared, to elevate the rich class in Indian society. The Narasimham Committee directive made it clear that in case of sanctioning loans drastic reduction is to be made by scaling down loans to agriculture, small-scale industries and unprivileged sections of society from 40 percent to 10 per cent. The financial scenario increasingly changed with the steady entry of foreign banks in India. Similarly, the focus of Public Sector banks has shifted to the corporate elite, consumer credit and capital market related activities. And one of the by-products of banking reforms under IMF/World Bank diktats was the deceleration in the quantum of flow of credit to the rural sector and the deterioration of the health of the credit delivery system as a whole. Following the IMF/World Bank Theology, development of the capital market has become an obsession of all the governments since the 1990s. Various artificial props like throwing open portfolio investment to Foreign Institutional Investors (FIIs), asking Public Sector banks to increase their exposure to the capital market both directly and indirectly and exemption of dividends from income tax have been given. The result has been severe shifting of the Indian Public sector banks. Moreover, liberalization of banking marked a major shift of finance from productive sector to consumption. The RBI Annual Report 2006-07 noted that the share of personal loan (i.e. loans for housing, education, automobiles, consumer durables, credit card expenditures, etc.) in total bank credit extended by scheduled commercial banks increased from 6.4 per cent at end March 1990 to 23.3 per cent at end-March 2006, driven by housing as well as non-housing loans. While the share of housing credit in overall credit rose from 2.4 per cent to 12.0 per cent that of non-housing retail credit rose from 4.0 per cent to 11.3 per cent. By contrast, over the same period, the share of agriculture in Bank credit fell from 15.9 per cent to 11.4 per cent and that of small scale industry plummeted from 11.5 per cent to 6.5 per cent. The above makes it abundantly clear the Narasimham prescription for banking sector reforms is followed by successive governments in India

Post-merger hurdles
Inexplicably, the debate has sidestepped some crucial issues such as rationalising the manpower and branch network after bank mergers. In the reform era, the strengths of public sector banking the branch network and superbly trained manpower have been initially discounted. Yet todays urgent tasks of the

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financial sector social banking and financial inclusion require these strengths to be harnessed to an even greater degree than before. Bank consolidation will create redundancy, demotivate staff and make the financial sector less inclusive. There are lessons to be learnt from past mergers involving PSBs. Punjab National Bank was asked to take over New Bank of India at what turned out to be an enormous cost for the former. PNB, among the top rung banks, went down by several notches after the merger. The same fate befell government-owned Oriental Bank of Commerce after it was asked to take over the failed Global Trust Bank. Surprisingly, cultural issues and regional strengths are not discussed when mergers among banks are discussed. Almost all banks in India have grown from specific regions and have retained certain unique strengths despite some of them coming under the government fold. A merger of such institutions with another bank would whittle down such strengths. An outstanding example here is the decision to merge State Bank of Saurashtra (SBS) with SBI. The SBS had a strong tradition in the Saurashtra region of Gujarat and it is difficult to see the merged banks strengths accruing to SBI. The SBI and its associates have a common technology platform and use the same logo. The rationale for adding some more bank branches to SBIs already large network under a merger is highly questionable. Finally, it is good to remember that bank consolidation in India is very different from moves to consolidate companies in specific industries or segments. For all the excitement it evokes, consolidation is still unwarranted in Indian context . The merger of banks, as being pressurized to materialize, will further deteriorate the banking service with smaller number of branches and fewer numbers of staffers. The much talked about agricultural loan will also remain a dream for the peasants. In January 2009 when the economy was in deep distress an RBI directive to the PSBs (Public Sector Banks) has permitted the use of agencies for opening bank accounts, collection of deposits, distribution of small amounts of loans and collection of loaned money, etc. Besides that, if the cheque clearing arrangement is entrusted with private institutions, it is estimated, as the daily income of nationalizes banks will be reduced to the extent of 70 to 80 percent.
To Be Continued .

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