Summary
1. That State Bank of India is on the prowl is evidence enough that global crisis had minimal affect on Indian Banking system.
2. Indian economy is on the threshold of a upward curve.
Analysis
Global Financial crisis (GFC) had a minimal effect on Indian Banking system.This is partly due to the maze of regulations in place and partly because of minimum investments overseas.India's real economic progress started sometime around 2001 driven by BPO and IT even though liberalisation of the economy hit around 1992.During this decade long 'gestation' period the licence regime was being slowly dismantled and regulations were getting diluted and Indian economic managers were preparing the financial system on a step by step basis to the outside world perhaps fearing opening floodgates would create a deluge and the fragile financial system would be buried under the resulting tsunami.Which in a way proved correct analysis, when the GFC hit the world financial headlines it created but a ripple in the Indian Financial markets.Indian banks were not even bit players in the global markets.But then Indian banks have been wary of investments in any stockmarket since their involvement en masse in the 'Great stock market scam of 1992'. During the same period the Indian population hit the 1 billion mark and the middle class had some money in hand to splurge on white goods thus creating a booming economy.Thus the the Indian Banks especially State Bank of India (SBI) have some cash in hand to look for overseas acquisitions.
State Bank of India is the largest Bank in India with a very large branch base all over India.It is sprawled literally to every nook and corner of India.And has a large deposit base including Government investments.Add to this a booming economy and a revitalised corporate sector which is itself on the lookout for acquisitions overseas and you have a reason for predatory moves of SBI.
This in a way is a good move.UK has not been as seriously effected by GFC as US. Because of the old British connections since the colonial days, Britain is still looked upon as 'the place to be' by Indians.By creating a base in the London financial markets SBI can progress towards developing its business in Europe and Americas and can one day hope to become a global player .
Being a global player has its own risks and benefits and one of the biggest risks is that next time a GFC comes calling it will be at the doorstep of the Indian Banks.
Hopefully by then not only Indian Banks but banks worldwide would have learnt their lessons from the present situation.
Harnath Sithamraju consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
