Pvt. sector banks in limelight

RBI Governor Raghuram Rajan has indicated of major reforms soon, in the banking sector, which will allow foreign banks to enter India, in a big way, including taking over a domestic bank. This will be allowed to those banks, if origin country of that bank also gives the same facility to our banks, as also, such bank should either resort to branch or subsidiary model.

Obviously, with this reform expectation, share price of small private sector banks have considerably risen on the bourses, with prominence of such banks, where there are no identifiable promoters. Prominent amongst them are Karnataka, South Indian, Federal, DCB, Lakshmi Vilas, Dhanlakshmi and Karur Vysya. In view of new banking licences, likely to be issued by RBI, to some NBFCs and corporate, demand for such private sector banks will rise, as they will be seen as M&A play, by the new entrants in the banking field, to quickly grow and expand.

But food of one is poison for other. Won't this reform be giving stiff competition to the existing private sector banks like Axis, Yes, Indusind, Kotak, HDFC? Also, PSU banks may not be able to withstand this competition and may loose its major revenues, now being earned from its non-funding business.