How to Profit from Shutdown of Indian Banks

Bank employees across India went on strike on Friday in a move that shut down much of the country's banking system.

The workers went on strike in protest against recent proposals to reduce government ownership in the Indian banking system, which threaten the employees' long-held benefits.

Most of India's banking system is dominated by government owned institutions that control the majority of bank branches and deposits.

The United Forum of Bank Unions (UFBU), which represents the many Indian banking sector unions, said that its members are upset over a number of issues, mostly stemming from increased private ownership and competition in the banking sector, which threaten perks that the workers have become accustomed to.

Bank employees in India have long enjoyed relatively well paid jobs with good job security but the reduction of government equity in the banking systems threatens the benefits that the workers have come to expect.

One of the major concerns of the bank employees might make American workers have a laugh at the Indian workers' expense: the possibility of Indian banking sector jobs being outsourced.

The workers' representatives claim that increased private ownership in the banking sector will lead to more mergers and acquisitions, as well as the outsourcing of much of the banks' work to outside firms whose workers have lower salaries, less benefits and less job security.

The Bombay Stock Exchange SENSEX, or the BSE 30, fell 387.31 points, or 2.19%, during Friday trading but the steep fall was a much smaller decline than those suffered by most of the other major Asian stock indexes and was brought on by fears of a coming global recession, rather than concerns over India's banking system.

Although the banking sector unions aren't happy with proposed reforms, banking reform will likely make the Indian banking sector more competitive and give a boost to the Indian economy as banking costs and corruption are reduced and loans are given out more efficiently.

HDFC Bank (NYSE: HDB) and ICICI Bank (NYSE: IBN) are two Indian banks that could benefit from banking reform.

The two banks are among the more modern, publicly traded banks that are not controlled by the Indian government and the staff of the two banks did not take part in the nationwide banking strike.

HDFC Bank (HDB) and ICICI Bank (IBN) already trade as ADRs on the New York Stock Exchange and could attract more attention from international investors who want to participate in the booming Indian economy, while profiting from the changes being made to a banking system that has long been in need of reform.

Investors who think that the banking reforms will lead to increased productivity in India but want to invest in a wide range of stocks might want to consider the iShares S&P India Nifty 50 Index (Nasdaq: INDY) or the iPath MSCI India Index (NYSE: INP) ETFs.

If the proposed reforms to the Indian banking system prove to be a boon to the Indian economy, these two ETFs will likely benefit as well.