ANZ Grindlays heads home

NS Vageesh

MERGERS and acquisitions activity in banking, which saw a lull after the HDFC Bank-Times Bank merger in November 1999, seems to have revived once again with Standard Chartered Bank possibly planning to take over ANZ Grindlays' operations in India as also West Asia.

The cost for Standard Chartered is said to be about $1.6 billions (Rs. 7,000 crores).

The Australia and New Zealand Banking group (ANZ) management was known to be unhappy with the returns it was getting from the Indian operations. The ANZ managing director, Mr. John McFarlane, was quoted in June 1999 as saying that the bank was looking to expand its presence in South Asia because of both economic and geographic logic. The countries he mentioned then were Thailand, Malaysia and the Philippines. Though the Asian crisis had not blown over completely, these countries were seen as having greater potential. India did not find even a mention.

This despite ANZ Grindlays being the largest foreign bank operating in India -- in terms of its network with 56 branches (since pared down to 39) -- and the second largest in terms of business done. The rather large network was the legacy of the mergers which took place at different times between National Bank of India, Lloyds Bank, Grindlays Bank and, finally, the ANZ group. As former Grindlays executives recall, there was considerable overlap of portfolios and branches.

For instance, the bank had five branches in and around the Fort area in Mumbai. ANZ Grindlays probably fell into the trap that public sector banks often find themselves in -- of mistaking physical presence for greater reach and business volumes.

This is highlighted by the fact that Citibank generated more business with seven branches. Clearly, the large network was not getting ANZ anywhere in the marketshare sweepstakes. With new delivery channels, such as ATMs, the Internet and mobile-commerce coming in, a large branch network no longer gave any decisive advantage.

The other major factor in the marginalisation of some of the foreign banks has been the rapid rise of private banks such as ICICI Bank and HDFC Bank. Earlier foreign banks could afford a higher cost structure because they differentiated themselves from public sector banks with their speed, efficiency and a customer-centric approach. But, now, private banks are competing on a similar platform -- superior service with the latest technology and at a lower cost compared to foreign banks. The raison d'etre for many foreign banks operating with many branches is open to debate.

With increased competition, commoditisation of banking products, greater volatility in earnings and lower spreads, banks the world over are under pressure to increase volumes to survive. More volume needs more capital because of regulatory requirements. Bank managements are in a ferment and beginning to demand more of their local operations. Almost all leading foreign banks have, over the past two years, revamped operations in India with the objective of making them deliver more with lesser staff. Some, such as ABN Amro, Bank Nationale De Paris (BNP), Citibank and Hong Kong & Shanghai Banking Corporation (HSBC), have been on expansion mode.

The strategies and the focus areas of each have also been different. Citibank, for instance, has expanded its retail base in its pilot project in Bangalore through a large number of ATMs. HSBC, on the other hand, is focussing on housing finance while ABN Amro is moving into retail finance (car loans, loans against shares). A few, such as Bank of America, have wound up their retail operations and stuck to corporate banking.

As Mr. Romesh Sobti, Chief Executive Officer, ABN Amro (India) told to Business Line a few months ago, ``This is a big market. If you have deep pockets and if you continue to embed your business in a rupee balance-sheet, you will be able to survive the pricing bloodbath. Some will fall by the wayside and four-five will emerge finally. We are willing to play that game of going through that three-four year period when losses will mount, and banks will lick their wounds. We want to be among those four-five players who will be left.''

The bloodbath that Mr. Sobti spoke about must have daunted ANZ. It probably makes sense to cut losses now and conserve resources for the prospective battle on its home turf. The financial landscape in Australia seems set to undergo some changes as some of ANZ's major rivals there -- National Australian Bank and Commonwealth Bank -- consolidate their operations.

Though the Australian Government bans mergers among the four major Australian banks under its `four pillars' policy, there is nothing to prevent a bid for one of them by a foreign rival. Vulnerability at home may finally be the clinching factor for the deal. For, perhaps, a lesson in this for all banks operating in India. Perhaps, indirectly, this also points to the need for banks to not stretch themselves too much in the pursuit of growth without consolidating.