Greed is Good

The last decade has seen many positive developments in the Indian banking sector. The policy
makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related
government and financial sector regulatory entities, have made several notable efforts to improve
regulation in the sector. The sector now compares favorably with banking sectors in the region on
metrics like growth, profitability and non-performing assets (NPAs). A few banks have established
an outstanding track record of innovation, growth and value creation. This is reflected in their market
valuation. However, improved regulations, innovation, growth and value creation in the sector
remain limited to a small part of it. The cost of banking intermediation in India is higher and bank
penetration is far lower than in other markets. India’s banking industry must strengthen itself
significantly if it has to support the modern and vibrant economy which India aspires to be. While the
onus for this change lies mainly with bank managements, an enabling policy and regulatory
framework will also be critical to their success.

Indian Banking Industry

The total assets size of Indian banking industry has increased more than five times between March
2000 and March 2010, from US $ 250 billion to more than $ 1.3 trillion, registering a CAGR growth
of 18% compared to average GDP growth of 7.2% during the same period. Consequently, the ratio of
commercial banking assets to GDP increased to nearly 100 per cent. The business of banks to GDP
ratio has almost doubled – from 68% to 135%. The growth has been profitable with improvement in
efficiency and productivity.

The return on assets of scheduled commercial banks (SCBs) was 0.6% in 2000-01 and increased to
1.1% by 2009-10. Gross non-performing assets to gross advances declined to 2.5% from 11.4%,
reflecting improved asset quality. The capital strength, as measured by the capital adequacy ratio, has
also improved from 11.4% in 2000-01 to 14.6% in 2009-10. Banks have added more than 14000
branches and 41000 ATMs to their network in the last decade, besides broadening the scope of
delivery channels to internet banking, mobile banking and call centre. Banks have rolled out
technology to the advantage of the customers. The growth of Indian banks in the last decade was
much higher than its preceding decade and there is no doubt that the present decade would offer even
more exciting opportunities.
Banking Structure in India
The bar for what it means to be a successful player in the sector has been raised. Four challenges
must be addressed before success can be achieved.

1) The market is seeing discontinuous growth driven by new products and services that include
opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-
based income and investment banking on the wholesale banking side. These require new skills in
sales & marketing, credit and operations.

2) Banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest
rates provided. This will expose the weaker banks.

3) With increased interest in India, competition from foreign banks will only intensify

4) Given the demographic shifts resulting from changes in age profile and household income,
consumers will increasingly demand enhanced institutional capabilities and service levels from
banks.

Your Challenge
As an Investment Banker, you are required to pitch for a merger / acquisition / substantial stake by an
Indian Commercial Bank for a Indian Commercial Bank. Both entities should be listed on NSE and/
or BSE. The maximum amount for deal is Rs. 3,400 Cr.

Round 1
All participants are expected to prepare a PowerPoint presentation explaining the following:

 Identification of sub-sector of bank

 Rationale & process behind identified potential banks
 Comparative valuations of selected potential banks
 Details of one, the best suited bank with future financials

Round 2 – (To be held at campus: SIBM, Pune)

 The details for Part B will be mailed to shortlisted participants, later

Contact Information:
For any queries email us at gig.transcend@gmail.com

Or Call:

Ankit gupta +91-8055755917

Akshay Fomra +91-9552555018