What do Bank of China and State Bank of India have in common? They are the largest commercial banks of two of the world's largest and fastest growing economies. But the similarities end here. On all other counts, the two banks are as different as chalk and cheese.
In terms of size, Bank of China is the 11th largest bank in the world, while SBI occupies the same position in Asia. Globally, however, SBI is 93rd. In terms of asset base, Bank of China is over four and a half times bigger than SBI. Last year, it had an asset base of $516 billion against SBI's $110 billion (at an exchange rate of Rs 45.77 a dollar).
When it comes to Tier I capital (that is, equity and reserves) -- another parameter to ascertain a bank's size and its risk-taking ability -- Bank of China is again bigger than SBI. Last year, its Tier I capital was $34.8 billion against SBI's $5.8 billion.
Bank of China is actually marginally smaller than the entire Indian banking industry. Last year, the collective Tier I capital of 77 Indian banks -- 26 public sector banks (2005-06 balance sheet of Punjab & Sind Bank is not yet available), 24 private banks, and 27 foreign banks operating in India -- was $33.7 billion.
The overall asset base was $533 billion. The top four banks in China, which also hold the top four slots among Asian banks, had a Tier I capital of $95 billion -- almost three times the capital base of the entire Indian banking industry. Similarly, the asset base of the four was $2,095 billion, almost four times that of Indian banks'.
If we look at the world's 10 largest banks, the comparison becomes even more glaring. Last year, Citigroup's, the world's biggest banking conglomerate, Tier I capital was $74 billion. Its asset base was $1,484 billion.
Each of the banks in the global top 10 list - JP Morgan Chase & Co, HSBC Holding, Bank of America, Credit Agricole, Royal Bank of Scotland, Mitsubishi Tokyo, HBOS and BNP Paribas - has a higher capital and asset base than the entire Indian banking industry.
Last year, BNP Paribas, which has the lowest capital base among the global top 10, had a Tier I capital of $35.7 billion, marginally higher than the Indian banking industry's collective Tier I capital of $35.28 billion. Similarly, HBOS, which has the lowest asset base among the global top 10 banks, is almost one-and-half times bigger than the total assets of the Indian banking industry.
But there's an interesting twist to the story. Despite being small in terms of capital base and assets, Indian banks are way ahead of their global counterparts when it comes to return on assets, a parameter which denotes efficiency.
Except for Bank of America and Citigroup, not too many of the global giants can match Indian banks in terms of RoA. Last year, Bank of America's RoA was 1.91 per cent, while that of Citigroup's was 1.63 per cent. Andhra Bank's RoA was not far behind at 1.59 per cent. In fact, its RoA was the highest among all Asian banks.
Among other Indian banks, Oriental Bank of Commerce's RoA was 1.41 per cent, HDFC Bank's 1.29 per cent, ICICI Bank and Allahabad Bank's 1.20 per cent, Punjab National Bank's 1.12 per cent and Canara Bank's 1.01 per cent. Last year, SBI's RoA was 0.94 per cent.
Among the top four Chinese banks only China Construction Bank had an RoA of 1.29 per cent. The other three bank's RoAs varied between 0.05 and 0.81 per cent. Among the top 10 global giants, JP Morgan Chase, Credit Agricole, Mitsubishi Tokyo, Mizo Financial and BNP Paribas had an RoA of less than 1 per cent.
Another indicator of the banking industry's health and efficiency is its non-performing assets. On this count too, Indian banks are way ahead of their Chinese counterparts and on par with the global giants. So obviously, a group of efficient Indian bankers is spending its time and energy in running tiny banks. On this count alone, they should start thinking of consolidation.
If the industry pushes for mergers among regional players, then five of the public sector banks in the western region - Bank of India, Bank of Baroda, Union Bank, Bank of Maharashtra and Dena Bank - will collectively own assets worth $76 billion and capital $3.9 billion.
On this basis, the merged entity could be Asia's 21st largest bank. Globally, it will be ranked 138. It may not be easy to merge all regional banks because of practical issues such as duplication of branches and common customers, banks should begin drafting a blue print for consolidation if they want to build scale and compete with the so-called predators when the sector opens up in 2009.