Indian Financial Sector heading towards more Consolidation?

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The covid-19 pandemic has caused serious financial constraints to the government and the government is tackling the problems to overcome it with more effective ways. The Indian Financial Sector is Heading towards Consolidation because of the asset risk. The covid-19 pandemic will trigger a second wave of consolidation in India, resulting in big firms across sectors gaining further market share from smaller and unorganized players. 

“Financial sector on a broader basis, without involving the public sector or the private sectors is heading for a greater consolidation because of the asset risk it is carrying and the overtime capital is going to be critical.” says Uday Kotak, Managing director of Kotak Mahindra Bank. Speaking at a virtual interaction interview on Thursday 23 July 2020, he emphasized that the financial sector must have capital risk management expertise and the ability to govern institutions on a sustainable basis. The number of private sector banks could be brought down to four from 12 via privatization or consolidation. The Government has already directed the merger of 10 public sector banks into 4 from April 1,2020.  

Noting that the core of Banking is the security of the Depositor’s Money, he talked about security, supervision, and governance needs to be possession neutral and pointers of governance ought to make use of every private and non-private sector banks contained all by the equal measure. He also highlighted for strong group oversight specifically in the areas of risk, finance and compliance.  If Equity Owners are going to protect their Equity Interest, then the depositors Interest is automatically protected. 

The Reserve Bank of India Governor also announced that the banks need to raise capital on an anticipatory basis to build up adequate capital buffers to mitigate risks arising out of the corona virus outbreak. The RBI also insisted that building buffers and raising capital will be crucial not only to ensure the credit flow, but also it is very much useful in building resilience in the financial system. 

Consolidation will happen but the depth and nature of this pandemic situation will decide what shape it takes and will determine the speed of this change. Uday Kotak also stressed on the need to create financial institutions of global quality and size. 

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