BSE - Bombay Stock Exchange

Envy of the Stock Market!

The Indian stock market scene has been dotted with periodic rumors that the government will reduce its stakes in banks which it controls. The Communist movement in the country, which controls trade unions of bank personnel, has steadfastly opposed any dilution of government control of these banks. The stock market community, which has minority ownership of these banks, seems to value such holdings highly, so all talk of market reforms leads to a rush to acquire shares of banks.

Though banks with majority government holdings have large numbers of unproductive staff, the stock market seems to attach more importance to the vast potential for increasing banking density in India. The urban and corporate segments are relatively competitive, but vast stretches of the countryside remain without banking facilities. Banks owned by the government have some captive business in collection of state taxes and dues, but they are also forced to make some advances with social rather than prudent banking principles in mind.

The Corporation Bank is one of the major ones with majority government control, and the stock market in Mumbai has recently treated the bank’s shares with much enthusiasm. Perhaps, news that the Corporation Bank has asked for regulatory approval to take over one of its smaller and less successful peers, has triggered much of the recent stock market response. The United Western Bank, which the Corporation Bank is said to want to take over, is under a moratorium, so the stock market enthusiasm is not clear to all! Nevertheless, the Corporation Bank has fared well and has shown consistent progress, including during the last quarter.

The Indian stock market community views banking as a most desired destination for investment. The country has a number of progressive and professional private banks, and small stock market investors probably expect to make profits from future consolidation activity. Dealing with politically powerful trade unions would be a handful for any acquirer, but this does not deter small operators on the stock market floor! Branch expansion is regulated in prime territories, so physical networks of government banks are significant assets in competitive and market share terms.

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