Regulatory push: Indian banks abroad going local

Pressure from regulators is forcing Indian banks to focus more on the local banking needs in overseas jurisdictions.

“We are trying to assimilate with the local community to get local business. In many jurisdictions we maintain good contacts with major banks in that centre so that we get to participate in local lending opportunities such as loan syndication,” said a senior State Bank of India official.

All jurisdictions are getting tougher because of the way the world is now, the official said adding, “Everywhere the regulation is getting tougher now. Issues like KYC (Know Your Customer) and anti-money laundering have put intense scrutiny on banking operations. Regulatory costs of compliance are definitely on the rise and hence, we have to build our business within those costs and price it accordingly.”

In UK, if a bank has certain amount of retail business, it has to be present as a subsidiary and not through branches. In the US, banks cannot solicit business so easily and it is not easy to ask people to invest in India. In Singapore, SBI is being extra cautious to ensure the asset quality is maintained and provided for as per the latest requirements.

As of June-end 2014, SBI’s international banking business accounted for about 16 per cent of the bank’s overall balance sheet size of $300 billion. In total, SBI has 190 offices in 35 Countries.

At present, SBI’s international book is growing at about 17-18 per cent. “In three or four years’ time, we should be growing at about 20-25 per cent. So, about a fourth of bank’s balance sheet’s growth should come from the international book,” the SBI official said.

In state-owned Bank of Baroda’s international portfolio, 70 per cent of the business is India-related, while the rest is local. Its overseas business operations extend across 24 countries through 102 Offices, contributing about 33 per cent to its total business.

“Indian banks need to think through the main purpose of their presence in the international locations...Banking system globally is tightly monitored in most countries with local needs increasing. Therefore, to compete in these markets, Indian banks need to be sure on the strategy, customer segment and build more local products…A lot of large Indian banks and businesses are now shifting their focus to local business,” Shashwat Sharma, Partner, KPMG India, said.

India’s largest private sector lender ICICI Bank has been repatriating capital from its overseas branches.

The bank’s total equity investment in UK and Canada was reduced to 7 per cent from about 11 per cent of its net worth between March 2010 and March 2014. ICICI Bank declined to comment on its further strategy.

Earlier this month, the private sector bank also decided to sell its shareholding in its Russian subsidiary, ICICI Bank Eurasia, to Sovcombank. The deal is expected to conclude by the end of this financial year subject to execution of definitive agreements and regulatory approvals. The Russian subsidiary accounted for less than 0.1 per cent of ICICI Bank’s consolidated total assets as on September end.

ICICI Bank’s international margins were at 1.58 per cent in Q2 of 2015 compared to 1.80 per cent in the corresponding quarter last year and 1.63% in the previous quarter. In addition, the overseas loan book remained broadly flat on a sequential basis.

Axis Bank, third largest private sector lender, also saw its international business decline a tad to $7 billion in the June quarter as compared with $7.20 billion as on March end 2014. However, it increased in the September quarter to $7.35 billion.

KPMG’s Sharma said the challenge for Indian banks is to grow their balance sheet. Hence, with more of Indian population in regions such as West Asia and South-East Asia, Indian banks are focusing more in those regions.

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