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| SBI's problem: It's big, but not by
global standards |
There
must be a sense of sadness among Indian banks. Even as an Indian
company creates M&A history by bagging an Anglo-Dutch steel
maker for a staggering $12.1 billion (Rs 54,450 crore), not a
single Indian bank will get a piece of the action. Don't feel
sorry for them. While corporate ambitions in the country have
pole-vaulted, Indian banks-state-owned as well as private-remain
small and under-capitalised by global standards. The largest commercial
bank in the country, the State Bank of India (SBI), ranks #57
on Fortune's (2006) global list of top banks by revenues. The
second largest player, ICICI bank, which emerges as the #2 bank
in the Business Today-KPMG study of Best Banks in India in 2006,
doesn't even figure in Fortune's rankings. That's because, compared
to SBI's revenue of Rs 43,183 crore in 2005-06, ICICI's is a mere
Rs 13,784 crore.
The conclusion is simple: Indian banks have been caught off-guard
by the sudden change in corporate environment in the country.
To be sure, banking is strictly regulated, and the environment,
by design, is not conducive to consolidation in India or acquisitions
abroad. Financial resources of Indian banks are so limited that
for many of them opening a branch abroad is a luxury; buying a
bank abroad is, then, inconceivable. Therefore, these banks have
been mute spectators to the wave of acquisitions by Indian companies
overseas. Needless to say, not all such acquisitions have been
as big ticket as Tata Steel's purchase of Corus. Most of them
have been well below the $500-million mark, offering plenty of
scope for participation by Indian banks.
As things stand today, it is expected that the pace (and size)
of acquisitions won't just continue, but accelerate. A handful
of the smarter banks have realised that it would be foolish for
them to let other global banks eat their lunch. ICICI bank, which
generates 18 per cent of its business through international operations,
recently raised $2 billion to fund India Inc.'s global ambitions.
HDFC bank has also lined up a 'globalisation' strategy that includes
opening branches, representative offices and subsidiaries abroad
in key international markets. These are important and necessary
steps. But the fact is, organic growth isn't going to take banks
such as ICICI and HDFC far. They need an aggressive acquisition-led
strategy to become global banks.
One of the things that the government must do is to merge some
of the big public sector banks to create an entity that looks
respectable in size when compared with global banks. In fact,
Finance Minister P. Chidambaram has been calling for such a merger,
but his political bosses don't seem to be listening. Also, the
government must also allow private Indian banks like HDFC and
ICICI to acquire other Indian banks. Finally, being global is
not just about size; there are several risks-business and macro-economic-that
Indian banks have little experience in handling. They have a long
way to go, and the time to get started was yesterday.
IT's Product Play
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| Road well travelled: IT
firms need to tread a different path |
The phenomenal
success of the Indian IT industry in the last decade has primarily
been driven by software services. The sector, which has grown
at a rate of 30-40 per cent annually, has successfully mastered
the art of remotely delivering high-quality, low-cost solutions.
This success story has, however, masked the fact that there have
been no major software product success stories from India except
for iFlex. Why? For starters, Indian entrepreneurs, according
to most venture investors, are inherently risk-averse, preferring
to trod a well-beaten path in services, rather than play in the
high-risk (but equally high-return) products space. Then, IT products
require companies to make investments well ahead of the pay-back
curve. Building a brand-a sine quo non for a branded product-is
an expensive proposition. Mortality rate among product companies
is several times higher than that of services companies. Indeed,
even hugely successful services companies have had to struggle
to make their products successful (Infosys and its banking product
Finacle, for example). Also there was this belief that product
companies have to be based in developed markets not just for access
to talent, but several other things (like client relationship)
that go into the making of a successful product.
That was the traditional thinking. A few Indian companies have
bravely up-ended this. They have forayed where services companies
have feared to tread. They have taken risks, invested money, and
reinvented themselves. The good news is that a few have even succeeded.
Part of their success is due to the change in the ecosystem. In
areas like telecom, banking or retail, it is India that is at
the cutting edge of global developments. Indian mobile industry,
for instance, is the fastest growing in the world, adding 7 million
subscribers a month. Some of the technology innovations in Indian
banking by banks such as ICICI Bank and HDFC Bank would astound
their global peers. In retail, new formats are being built here.
This is a paradigm shift.
Some Indian companies such as Subex Azure have also found a
way to rise to the top of the heap in certain market segments
despite the presence of well-entrenched global players. The way:
Acquire companies overseas. So, if you have a great software product
idea and believe that you can convince someone to put money behind
it, then this may just be the best time to try.
The Doomsday Clock
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| On slippery ground: Scenes
like these may soon disappear |
Are development
and ecological responsibility mutually exclusive? The unfortunate
answer to that, despite politically correct noises made by politicians
across the world, seems to be: yes. The developed nations burn
humungous amounts of fossil fuels to sustain their economies.
Over the last few decades, others like the South East Asian tigers
and then India and China have followed suit, with disastrous effects
on the global climate. The world has become warmer by 0.3 to 0.6
per cent since 1860. Average temperatures are projected to rise
by 1.4-5.8 degrees centigrade between now and 2100-greater than
anything that our planet has experienced in the last 10,000 years.
It's a global problem, but its impact-both economic and social-on
India will be particularly severe. It has been estimated that
rising temperatures, and the consequent melting of polar ice,
will cause ocean levels to rise by about 1 metre by 2040. This
will result in largescale flooding along the country's 7,500-km
coastline. The Sundarban delta, the low lying coastal areas of
Orissa, Andhra Pradesh and Tamil Nadu and parts of India's west
coast will be permanently inundated, resulting in massive dislocation
of millions of people.
Besides, warming over land is projected to be higher than over
the oceans; this will affect the land-sea thermal contrast and
monsoons. Since Indian agriculture is critically dependent on
rainfall, there will be widespread disruption of farming activity
across the country, severely threatening the country's food security.
Global warming and the resulting climate change is anthropogenic
in origin, so it is theoretically possible to arrest and even
reverse this trend, but there are limits to which any remedies
will work in practice. That's because industrial activity the
world over depends overwhelmingly on fossil fuels, which emit
carbon dioxide, methane, nitrous oxide and chloroflurocarbons
when burnt. And increasing levels of these greenhouse gases in
the atmosphere lead to global warming.
Is there, then, no hope for the world? Well, let's put it this
way: the future looks grim. It will be decades before the use
of alternative energy sources, like nuclear power, solar energy
and fuel cells, become widespread. This may be a good time to
recall the legend of Atlantis. It is said that the people there
were industrious; so God was bountiful in showering them with
prosperity. But over time, Atlanteans became arrogant and started
defying God's Law. God finally had his revenge when, on one cataclysmic
night, he destroyed their civilisation with floods and volcanoes.
This could well be our story. The clock is ticking; the time to
start acting is now.
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