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The VRS scheme in the recent past in some of the banks was aimed not only at downsizing the manpower but also at cutting down the staff costs and increasing the performance levels of the staff in the long run. Some of these banks are able to run the show to certain extent by low cost funds that are available thanks to the branch network spread over the length and breadth of the country.

Consolidation and move towards Universal Banking

We are slowly but surely moving from a regime of "large number of small banks" to "small number of large banks." The new era is going to be one of consolidation around identified core competencies. Mergers and acquisitions in the banking sector are going to be the order of the day. Successful merger of HDFC Bank and Times Bank earlier and Stanchart and ANZ Grindlays three years ago has demonstrated that trend towards consolidation is almost an accepted fact. We are also looking for such signs in respect of a number of old private sector banks, many of which are not able to cushion their NPAs, expand their business and induct technology due to limited capital base.

Coming times may usher in large banking institutions, if the development financial institutions opt for conversion into commercial banking in line with the recommendation of Narasimhan (II). In India, one of the largest financial institutions, ICICI, took the lead towards universal banking with its reverse merger with ICICI Bank coming through a couple of years ago. Another mega financial institution, IDBI has also adopted the same strategy, and has already transformed itself into a universal bank. Now the process of its progeny IDBI Bank merging itself with the parent IDBI is underway, and is likely to be completed soon. This trend may lead logically to promoting the concept of financial super market chain, making available all types of credit and non-fund facilities under one roof or specialised subsidiaries under one umbrella organisation.

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* Speech delivered by V. Leeladhar, Deputy Governor, Reserve Bank of India to Kanara Chamber of Commerce and Industry, Mangalore on March 11, 2005.