Banking challenges: can small remain beautiful?

The focus of this study is on the future of the 18 older, but smaller, private sector banks. In the fast changing banking milieu, these banks are pitted against the other two groups and they have to struggle for survival. The talks of restructuring the banking sector are heard ever since the publication of the first report of the Narasimham Committee in 1991, with all the ambiguities. Mergers and acquisitions may become the preferred route for growth, what with the new banks and even the public sector banks throwing hints, now and then, about this possibility. The recent liberalization of the rules governing the foreign direct investment is likely to enable the predators to enter the boardroom of smaller banks, quite easily.

Tracing briefly the growth of the 18 surviving banks, their problems and prospects are examined in this study. A comparative assessment of the operational dimensions of their size and strength, health and efficiency and the rewards received by the stakeholders is made, based on their annual reports pertaining to FY 2002. As the annual reports for the FY 2003 are now available though not for all banks - some of the key indicators of their performance during the FY 2003 are briefly examined. The areas, where changes in the mindset of all the stakeholders are necessary, are identified and examined.