SYNERGIES RELATED TO

CONSOLIDATION OF 27 PUBLIC SECTOR

BANKS INTO SIX

Presented By:AAKASH SINGHMBA(FINANCE)15021141004

INTRODUCTION Currently, in India the banking structure is mix of bank

type in which they serve various sectors or segments in the economy.

PSB has almost 70 % market share in the banking sector in terms of total assets and currently there are 27 PSB in India.

Currently India is in top 7 countries as compared to GDP but the Indian banks are not in TOP 70 banks worldwide.

Finance minister has come with a roadmap for consolidation of banks and wants to merge 27 PSB into 6.

In order to start the PPT lets got an overview of how banking structure perform in United Kingdom, China & USA.

INTRODUCTION TO WORLD BANKING STRUCTURE

The banking structure is one of the most important component in the economy of the world to get it grow faster. In any of the country the banking is one of the key aspect by which a country can develop.

World Bank is comprises of two main bodies which are International Bank for Reconstruction and Development (IBRD) & International Development Association, IDA.

World Bank

IDAIBRD

DATA FACTS & FIGURES1. GDP SECTOR COMPOSITION

Rank Country

GDP (millions of $)

Agriculture Industry Services Year

GDP Share GDP Share GDP Share GDP

1 USA 17,420,000 278,720 1.6 3,605,940 20.7 13,535,340 77.7 2014

2 China 10,360,000 1,004,920 9.7 4,548,040 43.9 4,807,040 46.4 2014

3 Japan 4,770,000 57,240 1.2 1,225,890 25.7 3,486,870 73.1 2014

4Germany 3,820,000 34,380 0.9 1,176,560 30.8 2,612,880 68.4 2014

5 France 2,902,000 49,334 1.7 562,988 19.4 2,289,678 78.9 2014

6

United Kingdom 2,848,000 17,088 0.6 586,688 20.6 2,244,224 78.8 2014

7 Brazil 2,244,000 130,152 5.8 534,072 23.8 1,579,776 70.4 2014

8 Italy 2,129,000 46,838 2.2 508,831 23.9 1,573,331 73.9 2014

9 Russia 2,057,000 82,280 4 746,691 36.3 1,228,029 59.7 2014

10 India 2,048,000 366,592 17.9 495,616 24.2 1,185,792 57.9 2014

11 Canada 1,794,000 30,498 1.7 505,908 28.2 1,257,594 70.1 2014

12Australia 1,483,000 54,871 3.7 428,587 28.9 999,542 67.4 2014

13South Korea 1,449,000 34,776 2.4 560,763 38.7 853,461 58.9 2014

GDP GROWTH (ANNUAL %)

Country Name Indicator Name 2010 2011 2012 2013 2014

ChinaGDP growth (annual %) 10.63 9.48 7.75 7.68 7.27

United Kingdom

GDP growth (annual %) 1.54 1.97 1.18 2.16 2.94

IndiaGDP growth (annual %) 10.26 6.64 5.08 6.90 7.29

United StatesGDP growth (annual %) 2.53 1.60 2.32 2.22 2.39

RANKING OF TOP BANKS AS PER TOTAL ASSETSRank Bank Country Total assets,

US$bBalance sheet

1 Industrial & Commercial Bank of China China 3,426.80 12.31.20152 China Construction Bank Corp China 2,831.19 12.31.20153 Agricultural Bank of China China 2,745.08 12.31.20154 Bank of China China 2,594.52 12.31.20155 Mitsubishi UFJ Financial Group Japan 2,455.60 12.31.20156 HSBC Holdings UK 2,409.66 12.31.20157 JPMorgan Chase & Co US 2,351.70 12.31.20158 BNP Paribas France 2,180.45 12.31.20159 Bank of America US 2,144.32 12.31.201510 China Development Bank China 1,897.80 12.31.201511 Credit Agricole Group France 1,857.57 12.31.201512 Wells Fargo US 1,787.63 12.31.201513 Deutsche Bank Germany 1,781.29 12.31.201514 Citigroup Inc US 1,731.21 12.31.201515 Japan Post Bank Japan 1,728.10 12.31.201516 Barclays PLC UK 1,659.77 12.31.201517 Mizuho Financial Group Japan 1,623.39 12.31.201518 Sumitomo Mitsui Financial Group Japan 1,556.33 12.31.201519 Banco Santander Spain 1,465.44 12.31.201520 Societe Generale France 1.459.02 12.31.201521 Groupe BPCE France 1,275.49 12.31.201522 Royal Bank of Scotland Group UK 1,208.37 12.31.201523 Lloyds Banking Group UK 1,195.45 12.31.201524 Bank of Communications China 1,104.02 09.30.201525 Postal Savings Bank of China China 1,049.19 12.31.201526 UBS Group AG Switzerland 954.27 12.31.2015

Rank Bank Country Total assets, US$b

Balance sheet

27 UniCredit S.p.A. Italy 940.796 12.31.201528 ING Groep NV Netherlands 920.389 01.31.2016

29 Royal Bank of Canada Canada 865.306 12.31.201530 Goldman Sachs Group US 861.395 12.31.201531 Norinchukin Bank Japan 855.353 01.31.201632 Toronto Dominion Bank Canada 846.009 12.31.201533 China Merchants Bank China 844.748 12.31.201534 Credit Suisse Group Switzerland 830.774 12.31.2015

35 BBVA Spain 820.134 09.30.201536 Industrial Bank Co. Ltd China 816.114 12.31.201537 Credit Mutuel France 808.906 12.31.201538 China CITIC Bank Corp China 790.331 12.31.201539 Morgan Stanley US 787.465 12.31.201540 Shanghai Pudong Development Bank China 778.305 12.31.201541 Intesa Sanpaolo Italy 739.679 12.31.201542 Rabobank Group Netherlands 732.985 12.31.2015

43 Nordea Bank Sweden 707.284 12.31.201544 China Minsheng Banking Corp China 697.508 09.30.201545 National Australia Bank Australia 695.747 01.31.201646 Bank of Nova Scotia Canada 662.928 12.31.201547 Commonwealth Bank of Australia Australia 657.882 12.31.2015

BANKING STRUCTURE OF UNITED KINGDOM

Bank Of England was founded in 27 July 1694, and Bank Of England is the central bank of the united kingdom and the model on which most of the central banks has been placed. The bank was in private stakeholders but since 1946 it is nationalized.

WORKING OF BANK OF ENGLAND

Bank Of England WorkingBank Of England

CHINA BANKING SYSTEM

Bank Dominated Financial System

Sector Bank Credit Stock Fixed Income

Insurance Asset Management Companies

Size(China) 10.7 3.7 3.4 1.2 0.4Size(US) 7.6 18.7 38 4.8 36

% GDP China128% 44% 41% 14% 5%

% GDP US48% 118% 240% 32% 230%

UNITED STATES OF AMERICA (USA) BANKING STRUCTUREHistory Before coming of a Federal Reserve System there were two banks in

United States which had tenure of 20 years each. First bank has tenure between 1791-1811 and the second bank has tenure between 1817-1836. Both banks is responsible for issue currency, accept the deposit from the general public, purchase and sell securities more or less they are working as a fiscal agents for a US treasury.

In Nov, 1910 the secret meeting took place which have 6 bankers and economy policy makers who represented financial elite of the western world. It was hosted at the JP Morgan State Jekyll Island in Georgia and in attendance was Senator Nelson w Aldrich, Abram haytt junior (assistant secretary of the treasury), Frank vandella (president at national city bank of new York), Henry P Davidson (Senior partner JP Morgan & Com), Charles Dean Nortan (President of the first national bank of new York), Paul Warburg (Director Of wells Fargo) and the Benjamin Strong(Emissary for J&P Morgan) and coincidentally the First president of the Federal Reserve. The meeting held was so secret that no one knows about that and then drafts a Federal Reserve Act. On Dec 23, 1913 the Act was signed into Law by President Woodrow Wilson’s

STRUCTURE & WORKING OF FEDERAL RESERVE SYSTEM

CENTRAL GOVT. PLANS TO MERGE 27 PUBLIC SECTOR BANKS INTO 6 PUBLIC SECTOR BANK

The main aim of this project is to model the idea of central government and analyze the possible consolidation of the Indian banking industry through merger and acquisitions.

One situation for which government wants to merge banks is that the Public sector bank already burdened with bad loans or their NPA is increasing drastically each year.

Second reason for merger is to have Indian banks on international stage.

Another reason for merging of banks is to safeguard the depositor’s interest.

BASEL III BASEL committee has been formed by the central government

in 1974 which includes 10 countries and later in includes 30 countries. Earlier BASEL I and BASEL II was implemented by banks but after the financial crises in 2008 , BASEL III agreed by committee in Dec 2010. This regulatory framework is the short coming of BASEL II to create more stable banking sector. This regulatory framework has been partially implemented by January 2013 and it will fully implemented by March 2019 in India.

The main aim of the BASEL III  1. Improves the ability of the bank to absorb losses or shocks.  2. Improves risk management and governance.  3. Strengthen bank’s transparency and disclosure.

Transitional Arrangements-Scheduled Commercial Banks(% of RWAs)

Minimum capital ratios 1-Apr-13

31-Mar-14

31-Mar-15

31-Mar-16

31-Mar-17

31-Mar-18

31-Mar-19

Minimum Common Equity Tier 1 (CET1)

4.5 5 5.5 5.5 5.5 5.5 5.5

Capital conservation buffer (CCB) - - - 0.625 1.25 1.875 2.5

Minimum CET1+ CCB 4.5 5 5.5 6.125 6.75 7.375 8

Minimum Tier 1 capital 6 6.5 7 7 7 7 7

Minimum Total Capital* 9 9 9 9 9 9 9

Minimum Total Capital +CCB 9 9 9 9.625 10.25 10.875 11.5

Phase-in of all deductions from CET1(in %)# 20 40 60 80 100 100 100

* The difference between the minimum total capital requirement of 9% and the Tier 1 requirement can be met

with Tier 2 and higher forms of capital;

# The same transition approach will apply to deductions from Additional Tier 1 and Tier 2 capital. SOURCE: RBI

Liquidity Coverage Ratio 2015 2016 2017 2018 2019

Minimum LCR requirement 60% 70% 80% 90% 100%

Government Merging 27 PSB into SIX

1. INDIAN BANKS ON INTERNATIONAL STAGE

Internationalization banks are able to increase in their deposits

Banking lending capacity will increased Banks are able to increase their profits Highly efficient financial services to all

customers around the world.Deposits

Year

Domestic BANKOF BARODA

Domestic per branch(5333 branch) Overseas

Overseas per branch(106 branch) %

Rs crore Rs Crore Rs Crore Rs Crore2010 185500.25 34.78347084 55,761.68 526.052011 233323.30 43.75085318 72,116.18 680.342012 280135.26 52.52864429 104735.85 988.072013 341705.59 64.07380274 132177.74 1,246.962014 379054.04 71.07707482 189840.35 1,790.952015 414277.85 77.681952 203281.68 1,917.75

2. INCREASING IN NON-PERFORMING ASSETS

Bank nonperforming loans to total gross loans

Country Name 2010 2011 2012 2013 2014 2015China 1.13 0.96 0.95 1.00 1.25United Kingdom 3.95 3.96 3.59 3.11 1.76India 2.39 2.67 3.37 4.03 4.35 4.23United States 4.40 3.80 3.30 2.45 1.85 1.71

1 2 3 4 50.000.501.001.502.002.503.003.504.004.505.00

ChinaUnited KingdomIndiaUnited States

NPA SPLITS IN DIFFERENT SECTORS

1. Priority Sector: These sector consists of loans given for agriculture, small scale industries.

2. Non-Priority Sector: These sectors include loans given to large and medium corporate and industries.

3. Public Sector: This type of loan given to general public.

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 20050.00

20.00

40.00

60.00

80.00

100.00

120.00

Composition of NPA of SBI & Assoc.

#REF!NON PRIORITY SECTORPRIORITY SECTOR

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 20050.00

20.00

40.00

60.00

80.00

100.00

120.00

Composition of NPA of Public Sector

#REF!NON PRIORITY SECTORPRIORITY SECTOR

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 20050.0010.0020.0030.0040.0050.0060.0070.00

Ratio (%) of Priority and Non Priority Sector NPAs of Total NPA

PRIORITY SECTORNON PRIORITY SECTOR

Axis Title

3. OTHER REASONS

Government wants to make these PSB into bigger banks so that they can match the pace with the demands of the economy.

Government doesn’t wants to pour more money in these banks as subsidy but they have choice because of the bad condition of the bank so this consolidation will help government to ensure that the capital goes to the more efficient banks and the weaker bank can merge with these efficient banks.

COMBINATIONS According to reports, the government will identify Six Big Public sector

banks and will make them as a key banker and small banks will get merge with these Anchor banks. These banks given a name of ANCHOR BANKS and these banks will be recognized by the government expert panels and the committee by the end of 31 October, 2016. The Bank Board Bureau(BBB)

On the basis of TOTAL ASSETS the six banks will be as. 1. State Bank of India is in the first position in India in public sector as per

their total assets of Rs 2048079.80 crore. 2. Bank of Baroda holds second position on basis of total assets. 3. Bank of India holds third position on basis of total assets. 4. Punjab National Bank holds fourth position on basis of total assets. 5. Canara Bank holds fifth position on basis of total assets. 6. Union Bank of India holds sixth position on basis of total assets

Ranks Banks Total Assets Mar 2015 crore1 State Bank of India (SBI) A 2,048,079.802 Bank of Baroda 714,988.553 Bank of India 618,697.764 Punjab National Bank 603,333.605 Canara Bank 548,000.566 Union Bank of India 381,615.93

BELOW COMBINATIONS IS MADE AS PER GEOGRAPHICAL ASPECTS

• West & central India

• South India

• East & North East India

• North Region:

Delhi, Punjab, UP, UK, J&K,

Himachal Pradesh, Haryana Orissa, west

Bengal, Bihar, Jharkhand,

Assam, Tripura, Manipur

, Maharashtra,

Gujarat, Madhya Pradesh,

Chhattisgarh, Goa

Andhra Pradesh,

Telengana, Karnataka, Tamil Nadu,

Kerala

SOME OTHER ASPECTS ARE ALSO TAKEN INTO CONSIDERATION BEFORE MAKING THESE COMBINATIONS SUCH AS:

NORTHERN REGION15%

EAST AND NORTH EAST20%

West & Central India38%

SOUTHERN REGION28%

DepositsNORTHERN REGION

23%

EAST AND NORTH EAST8%

West & Central India42%

SOUTHERN REGION27%

Credits

COMBINATION 1 Region COMBINATION 4 Region

State Bank of India (SBI) Anchor Bank OVERALL India

Bank of Baroda Anchor Bank

North, East, west,

Northern East, Central India

State Bank of Hyderabad South India Vijaya Bank South India

State Bank of Patiala North Region Bharatiya Mahila Bank North Region

State Bank of Travancore South India United Bank of India North Region , East &

Northern East

State Bank of Bikaner & Jaipur West & Central

India Corporation Bank North Region

State Bank of Mysore South India

COMBINATION 2 Region COMBINATION 5 Region

Canara Bank Anchor Bank OVERALL IndiaPunjab National Bank

Anchor Bank North Region

Allahabad Bank North Region Bank of Maharashtra West & central india

Indian Overseas BankSouth India, West &

central india Indian Bank South India

Syndicate Bank South India UCO Bank East & Northern East

COMBINATION 3 Region COMBINATION 6 Region

Union Bank of India Anchor Bank North Region Bank of India Anchor Bank East & Northern East

Oriental Bank of Commerce North Region Punjab & Sind Bank North Region

IDBI Bank Ltd. NorthNorth Region , West

& central india Dena Bank West & central india

Central Bank of IndiaNorth Region , West

& central india Andhra Bank South India

CONSOLIDATED FINANCIAL DATA

Amt in Crore

Combination 1

SBI & Associates

Combination 2

CANARA BANK & OTHERS

Combination 3

UNION BANK OF INDIA &

OTHERS

Combination 4

BANK OF BARODA &

OTHERS

Combination 5

PUNJAB NATIONAL

BANK & OTHERS

Combination 6

BANK OF INDIA AND

OTHERSCOMBINE ALL

 Total Total

TOTAL TOTAL Total TOTALALL SIX COMBINE

Particulars 2014-2015 2014-2015 2014-2015 2014-2015 2014-2015 2014-2015 2014-2015

Total Assets 2,606,657.58 1,363,869.27 1,280,100.58 1,208,495.38 1,188,105.27 1,031,542.06 8,678,770.15

Loans & Advances 1,674,016.54 854,388.19 797,770.27 726,941.89 752,347.92 670,784.76 5,476,249.57

Reserve & Surplus 159,481.58 63,084.43 65,592.59 59,199.35 65,888.17 52,317.07 465,563.19

Net Profit/loss 24,560.64 4,755.15 3,759.93 4,707.09 8,698.06 4,369.70 50,850.56

No. Of Branches 23078 15,723.00 12,738.00 11,270.00 13,872.00 10,594.00 87,275.00

No. of Employees 282915 139,296.00 111,308.00 97,835.00 128,009.00 86,637.00 846,000.00

NET NPA RS 36,304.06 28,375.96 24,534.73 18,282.66 29,000.60 20,844.42 157,342.43

Net NPA % 2.17 3.32 3.08 2.52 3.85 3.11 2.87

GROSS NPA RS 74,347.54 42,762.75 45,255.06 32,363.83 48,032.41 36,545.01 279,306.60

Gross NPA % 4.44 5.01 5.67 4.45 6.38 5.45 5.10

Deposits 2,041,044.32 1,168,700.97 1,036,287.98 1,052,817.38 1,007,059.56 889,569.67 7,195,479.88

DATA FACTS & FIGURES

State Bank of India (SBI) Combination 1

30%

Canara Bank (Combination 2)

16%Union Bank of India

(Combination 3)15%

Bank of Baroda (Combina-tion 4)14%

Punjab National Bank (Combination 5)

14%

Bank of India (Combination 6)

12%

Total Assets

State Bank of India (SBI) Combination 1

48%

Canara Bank (Combination 2)9%

Union Bank of India (Com-bination 3)

7%

Bank of Baroda (Combina-tion 4)

9%

Punjab National Bank (Combination 5)

17%

Bank of India (Combination 6)9%

Net Profit/loss

CONCLUSIONS & RECOMMENDATIONS

There never is exact time in the economy for merging bank so government should go ahead with this decision of consolidation of PSB and the benefits after consolidation is discussed below.

1. Increase in Size of Balance sheet:2. Low operational Cost:3. More Geographical Touch:4. Reduce Duplication of Loans:5. Single Treasury:6. Low Manpower requirements:OTHER BENEFITS TO CUSTOMERS1. It gives the customers to use the wider range of ATM facility or

network and which in kind benefits the customers from ATM charges on cross banking.

2. It will help banks to increase their service delivery and make their operations fast.

3. Customers of smaller banks will get benefit and have access to more financial instrument like mutual funds etc.