Skip to main content

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India
Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts.
While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail
“Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks, grew its year-on-year advances by 5.1 per cent. Private sector banks grew their loans by nearly 15 per cent.
Despite the rush of deposits after demonetisation, foreign banks’ deposits grew only 1.4 per cent against industry growth of 11.8 per cent.Foreign banks are also reducing their branch count, or at least, not opening new ones as branches don’t seem as relevant in the world of mobile technology.
According to the data from the RBI, the number of foreign banks reduced from 46 in 2015-16 to 44 last year, and the number of branches was down from 325 to 295 in the same period.In addition, there were 39 representative offices of foreign banks in the country.
A classic case of contraction is HSBC Bank. After exiting its retail broking business in 2013, and private banking in 2015, in 2016, HSBC downsized the number of branches from 50 to 26.“With technology advancing rapidly, the need for branches is declining,” former HSBC India Chief Executive Officer (CEO) Stuart Milne had told this paper in an interview.
Prior to the credit crisis of 2008-09, foreign banks would lobby hard to have a share of the 12 branch licences that the RBI would issue every year. While the central bank allowed foreign banks to open wholly owned subsidiaries, which would be treated on par with local banks without restrictions on branches, only two foreign banks — DBS and State Bank of Mauritius are interested.
Bankers say one of the major reasons why foreign banks don’t want to expand their business in India is the huge priority sector requirement. By 2019, all foreign banks have to give 40 per cent of their loans to the priority sector, at par with locally incorporated lenders. At the same time, there is almost no scope for these banks to expand inorganically in India. A bank’s shareholding has to be diversified in India, and no individual shareholder can hold more than 10 per cent.
There are foreign banks present in India with only a few branches, focused on providing cross-border services to corporate clients only because of this limitation. But in other markets, these banks have extensive retail networks.
Change of stance
Foreign banks were ahead in terms of technology, but that is no longer the case as Indian private banks steal the innovation march.Unlike public and private banks, foreign banks have always targeted the upmarket retail customer base. For example, Citibank has a current and savings account ratio of nearly 60 per cent of its total deposit base. But its total assets at the end of March remained unchanged at Rs 2.02 trillion
Standard Chartered Bank, under CEO Zarin Daruwala, plans to increase the retail share to 40 per cent of the book, from 25 per cent, and for that it is building a retail franchise network and hiring an experienced team. But these banks are exceptions, rather than the rule. Royal Bank of Scotland exited its retail business in India in 2016. Swiss lender UBS surrendered its commercial banking license to RBI in 2013. Barclays shut down its equity and broking business in India in early 2016, after having sold its retail business in 2011-12.
What foreign banks are doing now is focusing on their traditional core strengths. Some banks are good in providing advisory for mergers, or in global fund raising. Some are also large lenders to corporate groups. Most of the revenue for foreign banks come from investment and fee income. After the credit crisis, foreign banks decided to scale down their operations everywhere for want of capital. Retail operations also shrunk as a result, which got taken over by private sector competitors.
“For a long time, foreign banks in India have been lying low. The idea was to recover as much as possible before selling things off. Frankly, survival of the parent was the underlying principle,” said a senior banker with a foreign lender.
“Banks incorporated in the US got out of it relatively faster, but those in Europe are still trying to get up on their feet, especially as Brexit uncertainties are on,” said the banker.
The Business Standard, New Delhi, 09th January 2018


Popular posts from this blog

SC order on RBI circular: More options for banks to tackle defaulting firms

Lenders also have the option of restructuring the loans Lenders to companies which are under stress could now have three options to deal with them if they default on loans: take a haircut as part of a one-time settlement, restructure the loans for a longer tenure as they did when corporate debt restructuring schemes were allowed, or go to the Insolvency and Bankruptcy Code (IBC) for redress. These changes in the options available to lenders come, according to PE funds and bank lawyers who are involved in the IBC process, in the wake of the Supreme Court on Tuesday setting aside the 12 February RBI circular, which allowed a 180-day window to banks to resolve a company default.But they can still find a resolution. According to a Reserve Bank of India circular, a loan becomes a non-performing asset when banks cannot find a way of recovering their money in 90 days. In short, banks still have a window to resolve the default. Lenders can take a haircut as part of a one -time settlement of du…

April GST collections at new high despite rate rationalisation in December

Goods and services tax (GST) collection touched a record high in April, exceeding Rs 1 trillion for the third time in four months. The mop-up was 10 per cent higher over the previous year. Gross collection for the month was Rs 1.13 trillion, said the finance ministry. Despite the recent rate rationalisation in December, a rise in collection was reported. Of the total collected, the CGST (central GST) contributed Rs 21,163 crore, the SGST (state GST) Rs 28,801 crore, the IGST (integrated GST) Rs 54,733 crore (including Rs 23,289 crore on import) and cess Rs 9,168 crore (including Rs 1,053 crore on import). After settlement of the IGST and the balance IGST in a 50:50 ratio between the Centre and states on a provisional basis, the CGST stood at Rs 47,533 crore and SGST at Rs 50,776 crore. The CGST target in the Union Budget for 2019-20 is Rs 6.1 trillion. “The April collection indicates the tax base is increasing gradually, with GST getting stabilised with measures such as e-way bills and…