Foreign banks may seek more sops to subsidiarise operations

Foreign banks are likely to seek some regulatory sops for converting to subsidiaries here, although most large ones had already indicated their keenness to go in for subsidiarisation.

The subsidiary model that the RBI discussion paper on foreign banks entry talks about is “not a big incentive” for foreign banks to “massively come to India”, said Mr Marcel van Loo, Banking & Capital Markets Leader (EMEIA - Europe, Middle East, India, Africa), Ernst & Young.

‘Not a big incentive'

“It (allowing subsidiary model) is not a big incentive. It will be an additional burden because they (foreign banks) have to commit real capital to a country.

“It's not like you can bring the capital today and you can take the capital out tomorrow. A subsidiarisation is less efficient use of capital,” Mr van Loo told Business Line here.

With the banking sector in the developed world facing problems on account of the financial crisis, many foreign banks would not readily go in for this (subsidiary model) as it would require more capital, he pointed out.

A subsidiary model was better from regulatory perspective, but not from the bank's standpoint, E&Y's Banking and Capital Markets leader for EMEIA noted. At the same time, Mr van Loo maintained that it was for each individual foreign bank to consider whether it was any worth for them to be in India or not.

“If they are convinced about the growth potential of India, then they could be interested to come here”, he said.

Many banks in Europe are still in the process of regaining standalone strength, Mr van Loo said, adding that their priorities after the crisis are survival, recovery and not the perfect situation to go and manifest in newer markets.

Returns outlook

“The general consensus is that the return outlook for European banks will be in the vicinity of 8-12 per cent. I don't think we will ever see returns of 20 per cent that we saw in banking in Europe…..Banks are less risk taking after the crisis”, he said.

Meanwhile, Mr Hiresh Wadhwani, Ernst & Young's financial services national director in India said that E&Y is working with a number of constituents (in banking industry) with whom it is examining the implications of subsidiarisation in the backdrop of RBI discussion paper. He also indicated that E&Y is assisting banks in their submission to the RBI.

E&Y's financial services practice in India currently has 350 professionals and is looking at 30 per cent growth in headcount in the upcoming July-June financial year, Mr Wadhwani said.

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