Head of the top Banks in India

Public Sector Banks
State Bank of India Shri O.P. Bhatt Chairman
Punjab National Bank Dr. K.C. Chakrabarty Chairman and Managing Director
Bank of India Shri T.S. Narayanasami Chairman and Managing Director
Bank of Baroda Shri. M. D. Mallya Chairman & Managing Director
Union Bank of India Shri M.V.Nair Chairman & Managing Director
Canara Bank SRI. A. C. Mahajan Chairman & Managing Director
Indian Bank Shri M S Sundara Rajan Chairman & Managing Director
Private Sector Banks
ICICI Bank Ms Chanda Kochhar Managing Director & CEO (effective May 1, 2009)
HDFC Mr. Jagdish Capoor Chairman
Mr. Aditya Puri MD
Axis Bank Ms. Shikha Sharma CEO
Kotak Mahindra Bank Mr. Uday Kotak Executive Vice Chairman & Managing Director

When can an Indian bank rank in global top 10?

Today there is only one bank from India in global top 500 companies by their market value (Dec 2008). There are 81 banks and financial services firms in that list with only entry from India in this sector being SBI. In the top 10 banks there are three companies each from U.S. and China, two from Spain, and one each from Japan and U.K. The tenth largest bank is three times more valued than SBI. Despite of being a trillion dollar economy ranking 12th in world, Indian financial sector has failed to produce a big player at world level so far. This is even when there is huge growth potential for the Indian banks because of emerging economy.

The Indian banking industry is highly fragmented. The consolidation is taking place but there is a big limitation due to most of the banks being in public sector with government as their majority shareholder and controller. There are several restrictions on the operations of these state-owned banks. Moreover mergers and acquisition process within these banks is very difficult. The good part is that government is taking steps towards merging small banks with the bigger ones.

We have looked at the possible players from India which can grow up to the global level. The top three players – SBI, ICICI and HDFC are most likely to be the front-runners in this race. To grow to the size of global giants in terms of assets, and revenues will take more than 10 years for these banks if they pursue organic growth. In such a case, if the Indian economy continues to grow at healthy rate and there are not adverse conditions, SBI could come in global top 10 by 2020-2025. For ICICI and HDFC Bank it should take similar amount of time, as being in private sector they can pursue aggressive growth strategies.

M&A could shorten the journey considerably. After the recent merger of HDFC and Centurion Bank of Punjab, HDFC has been able to gain a wider coverage. M&A activities are likely to happen more often in the private sector banks. However, because of very small size of many private sector banks the incentive to acquire them is not much. Consolidation will still occur because of competitive pressure. A merger of two big players is likely to change the direction of the industry. In the absence of such mergers these banks will be prone to acquisition by foreign banks.

So, in any case it is unlikely for an Indian Bank to get on global top 10’s list in next 5-10 years on the fundamental basis. But on the basis of market capitalization it is still achievable in next 5 years as markets are believed to be ahead of and discount the future.

Top 10 Banks of India

As of 16 January 2009 the top 14 listed banks of India are:

Name of Bank	Market Cap billion $ *	Sector
State Bank of India	15.26	Public Sector
ICICI Bank	9.73	Private Sector
HDFC Bank	8.21	Private Sector
State Bank of Mysore	3.91	Public Sector
Axis Bank	3.29	Private Sector
Punjab National Bank	2.96	Public Sector
Bank of India	2.75	Public Sector
Kotak Mahindra Bank	2.25	Private Sector
Bank of Baroda	1.82	Public Sector
Canara Bank	1.70	Public Sector
Union Bank	1.60	Public Sector
IDBI Bank	0.90	Public Sector
Indian Overseas Bank	0.75	Public Sector
Central Bank	0.33	Public Sector

Out of 14 banks only 4 are private sector banks emphasizing the important role of public sector banks in the Indian Banking system. The public sector banks are so called as the government is the major shareholder in these banks and has a lot of authority in their policies and actions.

Here are the financials of these banks.

Name of Bank	Assets	Net Sales	Net Profit
State Bank of India	110.32	10.09	1.39
ICICI Bank	60.88	6.35	0.86
HDFC Bank	20.45	2.09	0.33
State Bnk My	5.65	0.51	0.07
Axis Bank	18.08	1.44	0.22
PNB	33.75	2.94	0.42
Bank of India	30.72	2.55	0.41
Kotak Mahindra Bank	4.54	0.52	0.06
Bank of Baroda	29.44	2.44	0.30
Canara Bank	30.45	2.93	0.32
Union Bank	21.44	1.95	0.29
IDBI Bank	22.83	1.65	0.15
IOB	17.44	1.64	0.25
Central Bank	20.97	1.65	0.11

State Bank of India (SBI) is clearly the dominant player in the Indian Banking Industry. It is the only bank of India with profit above 1 billion dollar. However, SBI is very small comparison to the top banks in the world. While Royal Bank of Scotland has assets worth about 2 trillion dollars, SBI's total assets value is about110 billion dollars. It will take some time before Indian banks become significant at the world level.

*The conversion rate of 1$ ~ 48.5 Indian Rupees has been taken for above data.

CEO of top Indian Banks

Mr. K. V. Kamath, MD and CEO, ICICI Bank





Mr. T. S. Bhattacharya, Chairman SBI Bank







Mr. Jagdish Capoor, Chairman HDFC Bank








Mr. Uday Kotak, MD and CEO, Kotak Mahindra Bank








Mr. P.J. Nayak, Chairman and CEO, Axis Bank

Top 10 banks in India by market capitalization

The top 10 banks in India by market capitalization (on Nov 26, 2007) are:

Rank	Company Name	Type	Market Cap. billion INR	Market Cap. billion USD
1	ICICI Bank	Private	1287	32.4
2	SBI	Public	1180	29.7
3	HDFC Bank	Private	581	14.6
4	Kotak Mahindra	Private	393	9.9
5	Axis Bank	Private	335	8.4
6	PNB	Public	189	4.8
7	Bank of India	Public	165	4.2
8	Bank of Baroda	Public	132	3.3
9	IDBI	Public	118	3.0
10	Canara Bank	Public	110	2.8

Source: http://www.moneycontrol.com Public Sector Banks and Private Sector Banks

INR-Indian National Rupee; USD-United States Dollar

The ‘type’ column shows that the bank is in public sector or private sector.

The logos of the above mentioned banks are:

UCO bank signs MOU with ICRA for credit rating

[India]

The bank loans and other exposure of UCO bank will be rated by rating agency ICRA. The grading of these exposures will help the bank to move to Reserve bank of India’s new capital ratio adequacy framework for Basel-II norms. ICRA says – “The MOU seeks to deliver benefits to the bank as well its clients. For the bank, ICRA’ credit rating would assist in implementing RBI’s new framework under Basel-II, whereas for the entity in a superior position in terms of faster loan processing and to obtain competitive credit terms from the bank.”

Are Indian Banks Ready for Basel II ?

As the days approaching for the implementation of Basel II in India, it becomes important evaluating the impact of the norms on Indian banking system.

As per RBI guidelines, Indian banks having foreign branches and foreign banks operating in India will have to adopt the regulations under Basel II by March 31, 2008. Except local area banks and regional rural banks, all the other commercial banks will have to migrate to Basel II by March 31, 2009.

After the implementation of these norms(more on these norms here ), banks will have to adopt Standardised Approach for credit risk and Basic Indicator Approach for operational risk for computing their capital requirements for these risks. In the later stage banks can move to Internal Rating-Based approach for credit risk and Advanced Measurement or Standardised Approach for operational risk with due permission from RBI.

Bank in India are going to witness significant impact on credit risk weight and operational risk weight with the implementation of Basel II. The norm provides an opportunity to Indian banks to reduce the required regulatory capital for credit risk by reducing the credit risk weight. As the RBI has lowered the credit risk for retail exposure to 75% as against current risk weight of 125% for personal/credit card loans and 100% for other loans, bank can change their portfolio accordingly to minimise the regulatory capital and increase their business. Apart from this, Indian banks have large short term portfolio which includes cash credit, overdraft and working capital demand loans, which are currently unrated and hence carry a risk weight of 100%. The RBI guidelines for short term investment provide for lower risk weights and that gives further reduction in the regulatory capital reserve. Hence this norm does bring an opportunity for Indian banks to reduce their credit risk weights and reduce their required regulatory capital. But, looking at the operational risk, the Basic Indicator Approach specifies a capital charge of 15% of annual positive gross income over the past three years, which does not help banks in reducing the required capital for operational risk.

The NPA has largely been reduced by provisioning for bad debt or by infusion of capital from government or other sources. But, with the implementation of Basel II norms, banks would need more capital and it would have to arrange for capital outside of their own or the government resources. In ICRA’s estimates, Indian banks would need additional capital of up to 120 billion Rs to meet the capital requirement for operational risk. Looking at the asset growth witnessed in the past and the expected growth trend, the capital charge requirement for operational risk will grow by 15-20% annually over three years. To meet this additional capital, large number of banks have been forced to turn to capital market with IPOs and FPOs. This further has its own impact on the banking structure as it demands for dilution of government ownership on these banks. Government was forced to increase the FDI limit by 74% in banking sector to help these banks raise the required capital. These moves in the sector have grown pressure to consolidate domestic banks to make them capable of facing international competition. Given the significant dominance of foreign banks over the domestic counterparts, even after the consolidation of domestic banks the threat of takeover remains if the FDI limit is further relaxed.

Thus, the large scale presence of foreign banks and consolidation of Indian banks are inevitable post Basel II.

Re-branding UTI Bank as Axis Bank

UTI Bank is rechristened Axis Bank. Axis Bank is India's third largest private sector bank and fifth largest bank by market capitalization. Ogilvy & Mather India Ltd was given the task of re-branding.

According to the website of Axis Bank:

"Axis Bank was first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation Ltd. and other four PSU companies, i.e. National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United Insurance Company Ltd."

Unit Trust of India (UTI) was a government institution. After the split of UTI in 2002, its subsidaries UTI Securities, UTI MF and UTI Bank were allowed to retain the UTI brand name for five years till January 2008. Due to the maturity of the agreement UTI Bank had decided to shed the UTI brand and went ahead with a much more modern sounding name - Axis Bank.

The new logo has two strokes, the first stroke depicts forward growth while the second stroke signifies a solid support system. The two thick strokes also connote solidity and security, and conveys a sense of authority and credibility.

Moreover, Axis as a brand is suited as a global brand name and can work across geographical boundaries. The choice of the name can be looked as a part of the bank's strategy to mark its presence globally.

Following are some salient points about the bank (as of year 2007):

It has the third largest ATM network in India (2500).
It has the third largest base of debit cards in the country.
It has the third largest EDC network.
It was the first bank in India to adopt Finacle as a core banking software.
It provides Cash Management Services to more than 2300 customers.
It is in the top 3 arrangers of corporate debt in India.
It provides payroll services to over 12,000 corporates.
It is the agency bank for a number of State Governments and Departments of the Central Government.

Are Basel norms really complicated?

The core business of banks is to take deposit from public and lend to individuals, industries, business etc. These loans carry risk of becoming bad debt (debtor is unable to return its debt) and hence non-performing. Since the major deposit of bank comes from public, the government and regulatory authorities are worried that the bank might be tempted to operate on thin capital and expose the depositors to undue credit risk. Therefore, banks all over world are required to keep a specified percentage of their loan portfolio as capital and if some loan goes bad, the loss is borne by the capital and not by depositors. Banks hence are required to maintain a capital adequacy ratio specified by the regulatory bodies.

Basel norm is a framework of capital adequacy for banks. These norms set the guidelines to estimate the amount of capital assets of specified kind should bank hold to absorb losses. The assessment of such losses that bank can incur decides the proportion of liquid asset banks must have at hand to meet those losses in case they are incurred. The loss can be based on the risk exposure i.e. credit, operational or market risks etc. The higher the risk of loss associated with an investment, the more of liquid asset will have to be maintained. A 100 percent risk-weight loss implies that the whole of the investment can be lost under certain conditions and a zero percent risk-weight indicates that the concerned asset is risk-free.

The Basel II norms is improvement over the earlier Basel I norms. India had adopted Basel I in 1999 and subsequently based upon recommendation of Steering committee , the Reserve Bank of India (RBI) issued draft guidelines for Basel II in 2005. Three major inadequacy of Basel I norms were –

1. Non-differentiation: The norms treated all borrowers alike.
2. No weightage was given to availability of security for credit facility.
3. It treated loans of varying maturity in the same manner.

Regarding the first issue, in Basel I, banks were required to keep 8 percent of loan as capital, whether the borrower is a first class blue chip company, with little or no risk, or it is a third rate company with poor track record. Basel II introduced the concept of 5 different risk weights, 20%, 30%, 50%, 100% and 150%. For the highest rated borrower, banks need to keep only 20% of 8 percent or 1.6 percent (8x 20%) of the credit exposure as capital. The RBI has retained the higher base level of 9 percent against world level of 8%.

For the second issue, value of security has been given due consideration while computing the capital charge for a loan.

Taking the last point, the Basel I rule prescribed the same amount of capital whether the loan was for a short period or for a very long period. As the period gets longer the risk associated with the loan increases. Basel II has made some distinction between short and long-term loans given by one bank to another.

The “credit worthiness” is to be determined by the rating accorded by independent credit rating agencies. And over a period of time, the credit rating given by banks themselves for borrowers could be adopted.

The operational risk is covered by Basic Indicator Approach which prescribes a capital charge of 15 per cent of the average gross income for the preceding three years to be maintained.

The revised framework of Basel II, consists of three-mutually reinforcing pillars –

1. Minimum capital requirements,
   
2. Supervisory review of capital adequacy and
   
3. Market discipline.

The first pillar offers three distinct options for computing capital requirement for credit risk and three other options for computing capital requirement for operational risk. The different options for credit risk are Standardized approach, Foundation Internal Rating-Based approach and Advanced Internal Rating-Based Approach. The available options for computing capital for operational risk are Basic indicator approach, Standardized approach and Advanced Measurement approach.

The second pillar is concerned with supervisory review process by national regulators for ensuring assessment of risk and associated capital adequacy of banking institutions.

The third pillar provides norms of disclosure by banks of key information regarding their risk exposure & capital positions and hence aims at improving market disciple.

Gyaan on Banking sector

Banks - how they function - they basically take money from people who have money and give to those who need it on a higher interest

First Indian bank was started way back in 1786 around. But that bank is not functioning now

Oldest Indian bank which is functioning now is SBI, established in 1806, which was known at that time as "Bank of Bengal"

Most of the old banks were headquartered at Calcutta, as it was prime centre of trade

After Independence, most of the banks were nationalised. In 1991 private banks were also allowed to function.

Some Public sector banks – SBI and its subsidiaries, Bank of India, Allahabad Bank, Bank of Baroda etc

Some Private owned banks – ICICI, HDFC, UTI Bank etc.

Banking Terminology
CAR – cash adequacy ratio – basically, government wants banks to keep some amount of money in cash.

CRR – cash reserve ratio – presently 6.75% in India – it is the ratio of cash to net demands and time liabilities (NDTL) of bank. RBI asks bank to keep a certain percent of amount of NDTL in form of cash. This ratio varies between 3 to 20%

SLR – statuary liquidity ratio - It is the amount of money that bank has to deposit to RBI. This rate varies from 25% to 40%