BUDGET 2000
SPECIALS
INTERVIEWS
COMMENTARY
GOVT&ECONOMY
Y2K: BIZ FEATURES
INDIA & THE WTO
CREDIT POLICY
BIZ IN THE USA
CARS & MOBIKES
MANAGEMENT
CASE STUDY
BIZ-QUIZ
USEFUL INFO
ARCHIVES
NEWSLINKS
SEARCH REDIFF

Leading Indian banking into the e-commerce age

Neena Haridas in New Delhi, Nikhil Faleiro in Bombay

"After instant noodles and instant coffee, it seems to be time for 'instant growth'," says a banking industry analyst, talking of the StanChart-Grindlays deal.

The buy-out of Australia New Zealand Banking Group or ANZ's Grindlays by the London-based Standard Chartered Bank or StanChart boils down, in a manner of speaking, to these two words: instant growth. The aquisition of Grindlays is a strategic move by StanChart aimed at gaining the top position in West Asia and the Indian subcontinent.



The deal also strengthens StanChart's base in India, gives it a chance to make a difference in emerging markets like India, Pakistan and Bangladesh.

For ANZ, the sale shifts the group's focus of its international operations from South Asia and West Asia to the Asia-Pacific.

The deal indicates that the private sector sees a boom developing on the rising consumption levels among the Indian middle class.

What does the $1.34-billion takeover mean for the Indian banking sector? Opinions vary. John Filmeridis, regional general manager and CEO, Standard Chartered Bank (India), says, ``With the combined technological and financial instruments the banks have, the combined entity will be superior to others in all aspects. We will bring Internet banking to the customer. The Indian customer wants the best and we are bullish about it.''

Pradeep Shrivastav, chief economist, National Council for Applied Economic Research, says, "I don't think this merger is going to have much of an impact on the banking system in India. Most of the action in the Indian banking sector happens in the public sector.

"However, for private players, it is a good sign. I foresee more mergers and acquisitions happening in the banking sector in the next five years. In fact, a lot more action will happen if the government allows privatisation of the public sector banks," he adds.

HSBC banking analyst James Falkiner echoes Shrivastav's sentiments. "I see the deal as a positive development for the bank's strategy. I see the proceeds and the buyback as broadly in line with expectations. As it is, the business is performing better in India."

When ABN AMRO Bank took over the retail business of Bank of America recently, it created a stir in Indian banking circles. Shrivastav says, "It was not exactly a similar deal. BankAm's costs of running its retail banking services were more than it could sustain. Hence, the bank thought it wise to sell it off to ABN AMRO. However, it did not really make much of a difference to the banking scenario in the country, nor did it mean much to the customers or employees."

However, the ANZ-StanChart merger is likely to do more than that. For one, the combination of the two businesses will position StanChart as the leading international bank in India, Pakistan and Bangladesh, and at the second spot in the United Arab Emirates and Sri Lanka.

The combined business will have around 9,000 employees and 116 branches in 17 countries in the region, with over 2.2 million customers.

In India, the merger gives StanChart a huge network of 39 branches spread across 15 cities, a retail customer base of 700,000 and a corporate base of 900.

Pre-merger, StanChart had only 19 branches in India in nine cities and a retail customer base of 650,000 with a corporate customer base of 400.

"This means more access, choice and facilities to the customer. That is, of course, going to make a lot of difference. Besides, it will also push the hitherto numero uno Citibank to the second slot," says Shrivastav.

Most of Grindlays's 870,000 customers are in India, where ANZ saw huge opportunities in retail banking but was only just beginning to turn it into a profitable business 16 years after owning it.

StanChart group chief executive Rana Talwar has been reported as saying that the deal is an excellent opportunity to acquire a well-managed, quality business at the right price. "It will position us to take advantage as the region, with its rapidly growing middle class, opens up to e-commerce and new banking products."

E-commerce! That is being perceived as the next Big Opportunity in India, provided India's telecommunications infrastructure is reformed fast, ushering in top quality bandwidth and good, low-cost communication systems. For this to happen, a modern, hi-tech financial infrastructure is essential. This is where StanChart feels it can make a difference, say analysts. The deal proves StanChart's faith that India's e-commerce revolution is bound to be a success, they add.

For ANZ chief executive John McFarlane, the transaction is a "substantial step in the strategy to reduce group risk and complexity". There's a fear of retrenchment among the Grindlays' employees now. However, StanChart maintains that this fright is misplaced as employees will be accommodated appropriately.

John McFarlane, CEO, ANZ, says, ``The sale is a good outcome for shareholders, customers and staff of both the banks.'' Analysts, however, foresee some bloodletting. Ruffled feathers, bruised egos, friction associated with a corporate merger, job-cuts, organisational recast and streamlining and rationalisation of operations are inevitable, they say.

But Time is a great leveller, they add, thereby implying that Talwar may succeed in bringing about harmony in a year's time. It is not known what role Anuroop Singh, country-head, India, ANZ Grindlays, will play in the new combine.

The merger mania is not peculiar to the banking industry, analysts say. Pharmaceutical, airline and automobile industries in India are familiar with the theme.

What is forcing banks to embark on a merger spree in India now is the rapid growth in retail base. The other factor is efficiency. Banking in India has become a game for market-share between the efficient and the inefficient.

Take the case of the takeover of TimesBank (spread 1.66 per cent) by HDFC Bank (spread 3.38 per cent). The pre-deal HDFC Bank's business-per-employee was Rs 520,000 while profit per employee was Rs 1 million. The respective figures for TimesBank were Rs 500,000 and Rs 722,000. TimesBank had a retail base of 150,000 accounts, an added attraction. Post-deal, HDFC Bank's strength rose to over 650,000 retail accounts, a network of 107 branches and deposits of Rs 70 billion and a turnover of about Rs 100 billion, making it the top bank among the foreign and private banks.

Paresh Suthankar, head of credit and market risk, HDFC Bank, says, ``Growing organically at 30 per cent or 15,000 to 17,000 new accounts a month, it would have taken us two years to gain TimesBank's 170,000 customers. By acquiring, we can get the same growth in six months and a higher rate of growth in the future.'' Aditya Puri, managing director, HDFC Bank, says, ``It was a tremendous opportunity to gain market-share and buy a bank that does not carry too much baggage.''

More or less similar rationale marks the StanChart-Grindlays deal. Grindlays focuses on providing trade finance and cash management to major local and multinational companies and supplying retail and credit services to its personal customers. The deal is expected to redefine consumer banking and Net banking in India.

It is not as if only the private sector banks are in sync with the times. Sikkim Bank, a non-scheduled bank, has merged into the Union Bank of India. Sikkim Bank had eight branches with a deposit base of Rs 637.2 million. But it was its major presence in the North-east which attracted the attention of the UBI. S N Kundu, CEO of the UBI, says, ``This was the easiest way to gain a foothold in the east.''

Rumours have been circulating for quite some time now that an ICICI-Centurion Bank merger is imminent.

Deepa Kamat, economist at SG Asia Securities, says, ``You may have all the technology at your fingertips but there must be someone to enjoy it. If there are no customers, there would be no profit. You have to have a good customer base or a huge retail base. Without the retail base, no bank can survive.''

It is this retail base that new age banks are trying to acquire quickly and without any fuss from existing old age banks. Jagdeep Kapoor, marketing consultant, says, ``If you cannot build it, then just acquire it.''

M S Verma, former chairman of the State Bank of India who now advises the Reserve Bank and chairs the Telecom Regulatory Authority of India, says, ``Their future is not something banks build brick by brick, they just acquire the entire structure and try to grow on it.''

Small wonder, StanChart is not happy with its latest deal. It now wants to acquire a public sector bank. "Of course, it will be of the 'instant variety'," forecasts an analyst.

ALSO SEE:

Convenience called cyberbanking

Business