RBI Governor: Indian banks should target global acquisitions
December, 04th 2010
Reserve Bank of India Governor Duvvuri Subbarao has revived the debate on global acquisitions by Indian banks, after a two-year hiatus, suggesting that local lenders would be able to pick up some valuable firms from the global financial wreckage.
The governor tempered the likely euphoria, saying that banks should be opportunistic in buying in regions with business potential and at attractive valuations , which would come with associated risk. He neither specified the regions nor valuation parameters.
Notwithstanding the risks involved ... some of our larger banks (should) be looking out for opportunities for consolidation both organically and inorganically, Subbarao said at an annual bankers conference. They should look (at)... regions which hold out a promise of attractive acquisitions. Indian banks should increase their global footprint opportunistically even if they do not get to the top of the league table.
The need for global expansion of Indian banks is necessitated by the rising aspirations of domestic companies to buy up assets as also rising trade with other emerging markets such as Indonesia and African nations.
On treatment of foreign banks in India , he left the door wide open, saying the soon-to-be-released discussion paper would address it, but said mandating incorporation of subsidiaries alone is not necessarily the safest net. Former Finance Minister P Chidambaram had advocated consolidation among Indian banks and acquisitions overseas, including an audacious bid for the then sinking Citigroup by State Bank of India .
Domestic banks reluctant
Mamy international financial institutions were trading at throwaway valuations during the 2008 credit crisis. But domestic banks have been reluctant either because they do not have the bandwidth to buy, or see better opportunities in the local markets. The domestic banking industry is heavily controlled, unlike in the West where loose regulations nearly collapsed the global financial system because of the mortgage crisis in the US. Indian banks mostly deal with plain vanilla loan products and stay away from exotic derivatives, the main revenue stream for the Western financial companies.