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KEY MESSAGES
Comments
Stability
Returns to
shareholders
Benefits to
customers
Value added
in the sector
MARCH 2004
UTI
Bank
P/B
3
Bank
BOB
0
0
5000
10000
15000
20000
25000
21 listed banks
37 listed banks
100%=Rs. 3,710
0.3
Remainin
g banks
37.1
0.6
287 Billion
0.3
Remainin
g banks
Next 15
banks
Top 5
banks
91.9
88.9
36.1
10.5
15.3
Share
of PAT
Share of
market
value
1,114.45 Billion
22.1
41.5
89.4
Next 15
banks
6.0
Share of
assets
37.9
168.57
Top 5
banks
46.9
45.0
36.4
15.3
Share of
asset
18.9
Share
of PAT
Share of
market
value
Madhavpura
Mercantile Cooperative Bank
South Indian
Co-op Bank
Nedungadi
Bank
Institutional root-cause
Weak corporate
loans to 19 customers
High involvement in pay-order
scam
governance
TRS CAGR
Jan99-Aug04
Per cent
New
Private
Banks
42.6%
PSU
Banks
30.06%
Banking
Index
27.44%
Old
Private
6.56%
BSE 30
index
9.89%
P/B
15.2
Germany
Hong
Kong
2.3
17.7
9.0
1.7
Thailand
8.1
1.5
Korea
6.7
8.5
New private
sector banks
8.0
2.6
2.6
Brazil
India*
P/B*
1.2
14.1
USA
P/E*
1.39*
1.1
*
Weighted average of 37 banks
Source:
Prowess; Bloomberg
Old private
sector banks
Public sector
banks
4.8
3.4
1.5
0.8
13.00
13.00
13.00
12.00
12.00
11.50
11.00
8.10
7.1
5.9
2.36
5.4
4.4
3.7
3.3
3.4
India
1998
*
Source:
1999
2000
2001
2002
1.80
2003
2004
UK
US
Top 5
PSU
Banks
2.52
Next 10
2.86
Remaining
Avg* 2.45
Private
Sector
Banks
Top 5
Remaining
1.59
1.82
Avg* 1.79
Foreign
Banks
Top 5
Remaining
*
Average for 4 years: FY 2000-2003
Source: RBI, McKinsey analysis
2.91
3.03
Avg* 3.01
More details on
next page
2004
~$26bn
1997
BCP
~$100bn
~$55bn
Standard
Chartered
MayBank
US Bancorp
Wells Fargo
UniCredito Italiano
Hana Bank
Shinhan
DBS Group
~$35bn
Kookmin
~$180bn
~$130bn
HSBC
Citigroup 170
~$60bn
150
~$95bn
120
110
Deutsche Bank
80
60
40
20
10
70
100
*
Market value as of Feb. 16, 2004 and Dec. 31, 1997; book value is as of fiscal year 1997 and for the latest available quarter for 2003
Source:
Bloomberg
2004
1997
6
Hang Seng Bank
~$26bn
5
First Financial***
4
Changwa
Bangkok bank
ICICI
Taishin***
Hua Nan**
~$10bn
25
MayBank
Hana Bank
Sinopac***
~$15bn
Krung
SBI
OCBC
Shinhan Financial Group***
UOB
DBS
Group
~$15bn
20
Kookmin Bank
Woori***
15
10
6
3
1
0
0
10
% of total
Millions
Manufacturing
6.44
Transport storage +
communications
3.12
Financing Insurance,
real estate and
business services
1.65
Agriculture
1.44
23.18%
11.22%
5.94%
5.16%
Construction
1.13
4.09%
Mining
0.95
3.43%
Banking sector
(all SCBs) had a
workforce of 0.93
million as on
31/03/2001, which
is 57% of total
persons employed
in the financial
sector
0.8
0.7
Someone in the
system needs to
take on the
pain of reskilling
employees else
there may be a
big issue some
years down the
line
0.6
0.5
Cost***
0.4
per
employee
0.3
0.2
0.1
0
0
50
100
150205
KEY MESSAGES
Cost
savings
1 Collections
2 Processes
3 Distribution
4 Infrastructure
5 IT
6 Operations
Product/
Segments
Revenue
enhancement
8 Geographies
Treasury
improvement
9 Cost of funds
10 Trading income
30
70
60-70%
failed
Source:
Year
Acquirer
Target
2000
HDFC Bank
Times Bank
6 9
Strategic reasons
2001
ICICI Bank
Bank of Madura
12 16
Strategic reasons
2002
Bank of
Baroda
Benares
State Bank
2003
2004
High accumulated
Punjab
Nedungadi
National Bank Bank
64
63
73
41
74
48
losses
Net NPAs of Rs.200 crore
Bank failure
Networth wiped out
SUMMARY
Free market
Key elements of Allow market-driven
restructuring
consolidation
approach
Allow free entry of
foreign banks
Managed
transition
Protectionist
Encourage domestic
Force consolidation
acquisitions by strong
(merger) of local
local banks
banks
Selectively open the
Close/restrict market
banking sector to
access to foreign
foreign competition
players
Impact
Increased dominance
Significant
(based
of 2-3 strong local
consolidation of
on experience of
players through
smaller players
other countries) Near-total replacement acquisitions
of local institutions by Foreign banks begin
to increase presence
foreign banks
Examples
Argentina
Brazil
No significant
strengthening of key
local players
Foreign banks
continue to have
limited opportunities
Malaysia
The Designing
World Class
Korean
Retail
the
end-state
Financial Services Company
Define
overall bank
performance
end-state
Define
cost
management
end-state
Define
product
availability
end-state
Number of players
3-4
broad-based,
global players
Regional/national
players
Micro-market
niche players
Community banks
Credit unions
Defender/small
Reserve the
right to
play/medium
Industry
shaper/large
Universal
banks
Non-banks
Brazil
6
1990
Eastern
Europe
1990
1990
Source:
2000
<1
1990
48
2000
Poland
62
2000
Korea*
23
Hungary
10
Asia
Mexico
3
1990
India
70
2000
Thailand*
33
2000
5
1990
12
2000
1990
2003
2008
Issues
Asset
Asset quality
quality
Issues
Productivity
Productivity of
of
payment
payment system
system
Branch
Branch structure
structure
for
for retail
retail delivery
delivery
Payment
Business
banking
Payment
Banks
Life
insurance
Credit
Retail and
pension fund Non-bank
management trusts
CANADA EXAMPLE
Credit
unions
Asset accumulation
Credit
Corporate finance
Investment
Risk management
Brokerage
Pensions
Insurance
Life
Health
Disability
Property and casualty
No. of players
Source:
4~6 leading
banks, many
foreign
banks
Annual reports; team analysis
120
200+
37
2343
Customer
needs being
met by a
variety of
providers,
including 4-6
major banks
through
several
products
and
channels
Expected
Potential
BASED ON
EXAMPLES OF
OTHER COUNTRIES
Strong
Newly emerged
leading banks
P& A
,
M &A
General
players
Status
quo
Ch
oo
Market
capitalization
se
&
fo
cu
M&A,
P&A
Stand alone
leading banks
M&A, P&A
M&A, P&A
Niche players
Niche banks
Week
Liquidate
Liquidate
Current
Future
Time
Source:
Team analysis
3.5
High
performing
banks
3.0
Imputed P/B
2.5
2.0
Regional banks
(asset size 70,000
crore)
1.5
Foreign banks
1.0
Large National
Banks
0.5
Stuck in
the middle
0.0
0
-0.5
10000 unviable
20000
Weak/
banks
30000
40000
50000
60000
Asset size
70000
80000
Weak banks
Imperative
Exit
Get acquired/merge
Stuck in the
middle
Large national
banks
Merge to form
regional banks
Get acquired by large
national banks/ well
performing banks
Acquire (if necessary) Are these banks truly at a sufficient scale or need
other banks to
increase scale or
obtain access to new
skills
END OF PRESENTATION