The Hindu Business Line : Indian banks expanding overseas

INDIAN banks are following Indian business - in going abroad. During the past few months a number of banks have announced plans to expand their international operations. Indian banks had 93 branches outside India at the end of March 2003. That is set to expand significantly over the next couple of months.

State Bank of India, for instance, plans to add around 20 offices in the current year to its existing 52.

Similarly Indian Overseas Bank, Canara Bank, Bank of India, Allahabad Bank, Syndicate Bank and ICICI Bank have plans to add 3 to 4 foreign offices each. Most of these are being planned in China and ASEAN region.

So, what is driving the overseas foray of banks now?

Corporation Bank's Chairman and Managing Director, (CMD), Mr Cherian Varghese, says that it is a natural corollary of globalising Indian business. He says that there are at least 100 Indian companies that would turn multinationals within the next four years.

The relaxation in regulations pertaining to investments abroad has also made banks look outside, he says.

Importantly, after enjoying good profit growth in the last few years, banks are in a stronger position to raise necessary resources to go abroad.

The major issue that banks have to deal with in setting up overseas branches is the allocation of capital.

Regulatory requirements for capital for overseas branches are stiff - often ranging between $50 million and $100 million, depending upon the country of operation. Banks are known to have baulked at the prospect of setting aside this kind of sums in the past.

IOB's Chairman and Managing Director, Mr S.C. Gupta, says that opening representative offices in foreign countries is an effective option until such time the bank gets sufficient business to warrant opening a branch there and allocating large capital.

Representative offices allow banks to get a feel of the country and its business environment, canvass business and establish networks that will come useful later, when a decision to begin lending/open a branch is taken.

Developed economies are clearly not the preferred destinations for these forays.

Allahabad Bank's CMD, Mr O.N.Singh, says he is not looking at them since competition in those areas is much tougher. Other bankers, sharing that view, say that it does not make business sense to be in New York or London since they are unable to raise dollar resources at the same rates as foreign banks.

The Indian banks that are already in these centres have basically served the needs of ethnic Indian community, mainly providing trade finance for Sindhi businessmen.

Even here, the competition has been stiff among different Indian branches and this has resulted in "over-financing", bankers say.

Remittance of worker earnings has been another source of fee income, especially in the Gulf area.

The contribution of overseas branches to the business profile and profits has so far been relatively minor.

For instance, Bank of Baroda and Bank of India's international operations contributed about 10 per cent of their profits in 2003. While for State Bank of India, it was just 3 per cent. This could be in for a change as more offices are opened outside.