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Large private banks to become bigger, consolidation likely over FY22-24, says Acuite

Consolidation is eminent because many small-sized private banks continue to face chronic asset quality problems, which constrain their capital availability, the rating agency said in a report

October 27, 2021 / 01:40 PM IST
Acuite Ratings expects overall GDP growth for FY21 to be in the band of 2-3 percent which takes into account a significant economic revival in the second half of the financial year. (Image: acuite.in)

Acuite Ratings expects overall GDP growth for FY21 to be in the band of 2-3 percent which takes into account a significant economic revival in the second half of the financial year. (Image: acuite.in)

The Indian banking sector would see a fresh phase of consolidation over the medium term, primarily driven by large private sector banks, rating agency Acuité said on October 27.

"Given the current buoyancy in the equity markets, there is a significant opportunity for large Indian private banks to explore the inorganic growth route through the acquisition of smaller private banks that continue to face headwinds or even public sector banks where the government is considering disinvestment," the agency said in a report.

This consolidation was also eminent because many small-sized private banks continued to face asset quality problems, constraining their capital availability, Acuite said.

There was uncertainty about their scalability and business sustainability over the short to medium term. Larger banks, on the other hand, had a comfortable capital cushion, insulating them from asset-quality stress, the agency said.

The low return on assets (RoAA) for smaller private banks in FY19 and FY20 in the range of 0.2-0.3 percent reflected their vulnerability to a challenging operating environment, Acuite said.

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Any consolidation, however, would be influenced by various factors like strategic fitment, expansion plan in a particular region, compelling valuations, deposit franchise and technological compatibility, the agency said.

The Indian banking sector has already seen the first round of consolidation involving public sector banks (PSBs) over 2017-20 period. The government recently merged 10 PSBs into four, kicking off a mega privatisation drive.
Moneycontrol News
first published: Oct 27, 2021 01:40 pm

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