Is it better for India to have bigger but fewer banks?

There are reports that India is going to participate in a new cycle of consolidation in the banking public. Governor of the Reserve Bank of India, Urjit Patel, recently pointed out at Columbia University that it is better for the country to have fewer, healthier banks.

While the government intends to consolidate public sector banks, NITI Aayog, a policy think tank advising the Indian government had worked to formulate a road map and report before the first week of July.

In theory, the main reasons for these mergers are economies of scale and scope, increased revenue, maximize value, greater efficiency, cost savings, customer and asset diversification, and also that large banks contribute to international recognition. However, fusions, in general, are a challenge and must be carefully designed. They can succeed in similar institutions with similar culture but can not be widely adopted, as it could lead to job cuts, closure of branches and, in some cases, a reduction in the quality and quantity of services. The simple consolidation of weak banks does not produce a healthier institution. In fact, it can cause significant damage to the economy.

The crisis in Southeast Asia in 1997 has encouraged the consolidation and restructuring of banks in many Asian countries. In the US, there has been a consolidation of the banks since 1916.

Restructuring of Indian banks through mergers and acquisitions has been recommended by several commissions since 1972. To illustrate, the new Bank of India and the National Bank of Punjab merged the two PSBs in 1993. In 1998, M Narasimham headlined in the banking sector reforms also recommends PSB merger. Therefore, many banks have merged – for example, Saurashtra State Bank and Indore State Bank with a State Bank of India in 2008 and 2010, respectively.

In this context, the recent consolidation of the SBI and all its sister concerns should be considered as a continuation of the same process. The newly merged new OSE now has a base of 370 million customers, a network of nearly 24,000 bank branches and 60,000 ATMs. He was catapulted to the top 50 banks in the world in terms of assets.

It is necessary that while OSE, the largest lender in India, is competing with the best banks in the world in terms of size, and the network of business offices, faces competition within the country. On the other hand, consolidation is not only about size, but also efficiency and synergy, since economies of scale make the bank more productive, profitable and competitive. There is evidence that large PSBs are more efficient and work better than BSPs. Therefore, the need for consolidation.

If the consolidation of banks continued to strengthen PSB and solve the problem of increased delinquency and ongoing recapitalization needs, other alternatives such as privatization of PSB loss and cost benefits should also be explored. Many countries, including the former bloc countries, have privatized their nationalized banks.

This implies that the social control policy of 60 years in India should be reviewed. As the Planning Commission was a remnant of the socialist era, it is the same social bank. Is it the time to see if the PSB are really necessary to serve social banking in our country and, if so, at what price. Privatizing some PSB deficit will ensure that market discipline forces them to rectify their strategy, which will have a domino effect on other PSBs.

COVERSTORY BSNL/Bharti Reliance Tata Reliance Vodafone Idea Aircel Trik

more evolved for 4G, while Jio ini­tially took on 2,300 MHz. Only later did Jio apply and securel,800 MHz in the auction of February 2014 by paying Rs 11,100 crore as spectrum fees. In the auction this year in March, Jio secured spectrum in the 800 MHz band for another Rs 10,100 crore. The spectrum auction fees are not paid in one go, but is spread over the licence period. And yet, it is still a substantial cost to op­erators and the reason why their in­vestment in infrastructure is low.

Jio employees say they have been able to integrate the 1,800 MHz and 2,300 MHz bands for rolling out their services. Industry sources say this integration is not easy and is a technology challenge. Industry ob­servers say the company is still work­ing on the integration of800 MHz, while the 1,800 MHz and 2,300 MHz integration is complete. This means the rollout will not be a big one of both voice and data across the country. The first phase will be in those 13 circles in which Jio has both 1,800 MHz and 2,300 MHz. This will be followed later with a rollout in circles where Jio has just 800 MHz.

Data Is King

Jio may roll out over the coming years and cover 800 cit­ies, but it is not seen as a challenge for voice services. Its biggest advantage is that it is a data network and offers far superior speed than anything else (The Thrills of Speed).

Data revenues are growing fast for all the operators. In


Data revenues are growing fastforalloperators

fact, the smaller operators with lim­ited circles sell more data packages than voice. For instance, if you notice the advertising of Sistema Shyam Teleservices, which sells telecom ser­vices under the brand name MTS, you would think it is an Internet ser­vice provider, selling dongles. Simi­larly, Tata-DoCoMo also positioned itself as a data service provider. Air- tel’s data revenue as a percentage of total mobile revenue is in the range of 16 per cent to 17 per cent and growing much faster than its voice revenues. Every operator is witness­ing a similar growth in data volumes and revenues. This is the low hang­ing fruit that Jio is expected to capture by becoming the second SIM in existing handsets. Consumers may con­tinue to use voice with their existing providers, but for heavy data usage they will shift to a Jio SIM.

Which is why one of the first apps that Jio launched is a WhatsApp clone called, uninspiringly, Jio Chat. The app allows users to video chat, besides a few other bells and whistles. It may not have caught popular attention but it did trigger an action from operators, who first began fa­vouring some apps and choking bandwidth for others. While the issue was labelled as a Net Neutrality battle, it was really more of a peremptory strike by incumbents against Jio’s app-based strategy.

Jio’s strategy is not just about apps; it includes a combi­
nation of products and services. Jio Chat is an example of one such product, which can be downloaded on any phone and can work with any operator, though to realise its true potential you might need a second SIM card from Jio.

Breaking Out In Hotspots

A similar product is offering broadband wi-fi services in select locations. Jio has been studying user behaviour pat­terns in Ahmedabad by offering broadband wi-fi services in six-eight locations. These services are in malls and open public spaces. The company may offer more such hotspots to let people experience Jio services.

Wi-fi is an important area for all telecom operators. Vodafone, Airtel and even Idea seem to be developing hot­spots or working with wi-fi operators. Jio is using a blend of LTE and wi-fi networks to provide connectivity in select spots, but this will only proliferate. It is working with state governments and city authorities to provide wi-fi services, according to the Reliance Industries annual report for 2014-15.


RAMPING UP APPS        Another product that Jio is

Jio s WhatsApp clone, Jio planning to launch is My-fi, a Chat, triggered action       „              …             , . , , .

from rival operators               small credit card-sized device

that one can carry to create small wi-fi zones. This is a product for todays digital connected- everywhere generation. Jio officials confirm the device ex­ists and there are pictures of it floating online. The pricing for My-Fi is said to be Rs 1,800-2,000 but this is conjec­ture. Technically, people could use their existing phones combined with My-Fi to make voice or video calls, pro­vided the data charges are low; so low that users won’t think about their consumption patterns while using it.

High-speed broadband connectivity over fibre and wireless-to-home is another product that the company is developing, according to its annual report and other
sources. One of its breakthrough products uses a micro base station installed outside the home. This will provide a number of services. Technically, this base station can provide video content for IP-enabled TVs and of course, broadband into the house. This is expected to disrupt DTH service providers, who are the only HD quality TV services providers.

Jio has also developed a bigger version of its micro base station to service a whole colony. This unnamed station can also function as a wi-fi hub like the GBM towers. It is small enough to be placed on an electric pole and has been developed by Cisco under its small cell network. It covers a radius of50-60 metres.

Within its content services, Jio is also planning to launch a set-top box that can replace existing DTH boxes. With these, one can watch the past seven days of pro­gramming from the cloud. It also allows people to buy and download movies and keep them in the cloud to watch later. To make this possible the company has invested in a data centre to host these services. While the size and ca­pacity of the centres is not known, its existence gives Jio a big edge and pitches them against not just telecom opera­tors, but also digital services providers like Googles You­Tube or even Facebook’s WhatsApp Messenger. Both these Internet companies are not able to offer high quality HD content as their data centres are outside the country.

The data centre is also important as Jio is offering VoLTE that perforce requires a telecom cloud. Sandeep Girotra of Nokia says, “For VoLTE to successfully take off in India, an underlying IMS (IP multimedia systems) net­work is a must. This also requires a gradual shift towards Telco Cloud, where many of the IMS infrastructure can be on a cloud platform, making it faster and easier for new applications like VoLTE to be deployed.”

As for Airtel’s plans to bundle content along with its 4G service, Srini Gopalan says: “Differentiating telecom ser­vices using content is old school. There are obvious limita­tion of both content and bandwidth here. There is a short­age of spectrum and till it is resolved it is not possible to realise the potential of mobile broadband.”

Airtel is not the only sceptic. Other companies like Vodafone and Idea are also not following a strategy to seed the market with both content and devices. Jio, as a pioneer, has to create the market and has no choice but to shoot the arrows and scare away competition. It is also hoping that the seeds it has been sowing for so long, will give it a rich harvest soon. ED

  1. Yatish Rajawat is a smiorjournalist based in Delhi

& @yatiskrajawat For more on telecom, visit

HE ROLLOUT OF RELIANCE JIO’S 4G SERVICE this time may cause ripples, but not waves or a tsunami as the entry of Reliance Infocomm had caused in 2001, supported by distortions in policy framework then. There have been massive expectations in the tele­com sector ever since Reliance Industries (RIL) acquired a majority stake in Infotel Broadband, which won pan-India broadband wireless access (BWA) licenses in the 2010 auction. The expectations have hinged on Mukesh Ambani-led Reliance’s re-entry into the telecom space through Reliance Jio Infocomm. The Reliance group’s foray into the mobile segment in 2001 via Reliance Infocomm had challenged and practically trans­formed the country’s telecom landscape through its market-disruptive strategies through blatant policy manipulations and large-scale operations. Back then, Reliance was instru­mental in introducing various offerings at dirt-cheap prices, which went on to revolution­ise wireless growth in India. The industry, experts and users are now expecting a very similar wave to sweep the broadband segment.

Coming to the positive side, Reliance Jio does have several inherent strengths as a com­pany. It always had the financial backing of RIL, one of the largest business entities in the country. Due to this, the company always had sizeable resources and in the past, it has been a market changer with disruptive marketing strategies. That is no longer a plus

point, when incumbents too are well entrenched, tech­nologically and financially. In the past three to four years, Reliance has managed to build up significant ca­pacity. It has a fairly large and geographically well- spread network and Reliance has always seemed to maintain cordial relations with top government offi­cials. Somehow, whenever someone decides to analyse its history, they realise that various policies were tweaked to favour them from time to time.

Reliance Jio aims to become India’s largest telecom player within three years of its service launch and to break even by the end of the third year of operations, many believe that Reliance Jio can change the pecking order in the world’s second-largest telecom market. But personally, we feel there are some major obstacles that Reliance Jio might be facing at the entry level. The po­tential challenges are very basic in nature, i.e. a weak device ecosystem, lack of backhaul network support and issues related to the low density of 4G networks. The al­ready saturated urban voice market and the incum­bents’ underutilised 3G networks will definitely pose challenges. Passive infrastructure sharing with existing incumbents will help Reliance Jio in the short-term only, but pan-India service strategy will require the es­tablishment of new towers and cables, leading to huge capital expenditures.

We believe that while the company may want to adopt the strategy of disruptive pricing again, the scenario has changed significantly over the past decade or so. Cus­tomers are more educated and spoilt now. They would need a strong reason to switch from one operator to an­other. Either the quality of service being offered by Reli­ance Jio has to be the key differentiator or the price strategy of the service has to be extremely attractive for majority Indians. However, this doesn’t seem to be an easy task in the ruthless telecom market that currently

It gives the fastest mobile Internet experience so far

A ground-based mast (GBM) tower design with­out back-up diesel generators. Incidentally, telecom is the third largest consumer of diesel in the country, thanks to a patchy power scenario.

Jio’s GBM design integrates a lithium-ion battery as a back-up inside the towers itself. The design was presented at the Indian Institute of Technology, Bombay. It also takes much less space and offers better coverage. The tower can be set up on 4 square metres and connected by fibre. According to Jio officials, the competition did not make it easy for them to get access to towers, which had fi­bre connectivity. “Even in places that had towers with fi­bre connectivity, there were more than six operators on it. So we had to install our own towers in key high-density traffic areas,” says a Jio official.

“LTE operators have to deploy VoLTE as voice will remain ubiquitous and help save costs”


India head, Nokia Networks

Airtel is the only operator among the incumbents seri­ous about 4G implementation. It has already started roll­ing out services to pre-empt the Jio launch. Airtel’s strat­egy is to upgrade its existing 3G network to 4G, and it has

  • out of1,75,000 towers 3G-enabled. Srini Gopalan, head of consumer business at Airtel, says, “We will have 4G in 20 cities by 2016, and as we already have a 3G network we will use it as a fallback for voice for our 4G networks.”

The fallback for voice is another issue that has delayed the rollout of the Jio network. It’s really designed for data, not voice. 4G networks use a technology known as voice over LTE (VoLTE) for carrying voice. Sandeep Girotra, head of India, Nokia Networks, says LTE operators will have to deploy VoLTE as voice will remain ubiquitous and it will help save operating costs. Moreover, the voice and video experience is possible. So for voice, Jio has to add both infrastructure and data centres.

4G Handsets At Hand

For many years, 4G handsets haven’t been available in In­dia. It’s been a chicken-or-egg situation, with handset manufacturers waiting for some sign of life before launch­ing them in the country and cellular operators waiting for enough users to warrant moving up to faster connectivity. 4G handsets need to be configured for VoLTE and the eco­system for this is still evolving, but LTE-capable handsets are now being launched in almost every price segment, ex­cept the absolute bottom tier. Samsung and LG’s flagship phones, for example, are 4G-ready. These are, of course, expensive handsets. But down in the Rs 5,000 to Rs

  • segment, phones like the Redmi 2 are also simi­larly 4G-ready. All that is now needed is 4G networks, such as the one set in motion by Airtel.

Airtel is able to roll out services faster as it has the ad­vantage of working in the 1,800 MHz space, which is far