Money & Banking

EU’s blacklist could impact Indian banks’ W Asia ops

Palak S Shah K Ram Kumar Mumbai | Updated on March 09, 2018


Lending is mostly to Indian clients but loan book also has local exposure

The European Union’s blacklisting of 17 tax-havens, including the United Arab Emirates (UAE) and Bahrain, may hit the operations of Indian banks in West Asia.

Dubai (UAE) and Bahrain are key financial and banking centres in West Asia and Indian banks have a reasonable presence in these two jurisdictions. Though Indian banks have been lending predominantly to Indian clients in the UAE and Bahrain, some part of the loan book has local exposure.

Experts say banks will become more selective in their credit appraisal process and they will have to ensure that their liquidity management is better managed in these jurisdictions as liquidity could suddenly dry up if European banks start pulling out.

Risk management is key

“Now, if there is going to be a setback to the local economy because of the European banks unwinding their operations, Indian banks have to, maybe, fine tune their risk management so that they at least don’t have local problems getting on to their balance sheets,” said former banker NS Venkatesh, who headed IDBI Bank’s first overseas branch in Dubai, between 2009 and 2011.

The blacklisting of UAE and Bahrain by the European Union (EU) could have widespread repercussions and generate stress on local as well as foreign banks’ balance-sheets as no European financial institution would deal with any financial entity in the blacklisted jurisdiction, experts say.

Per the Indian embassy in the UAE’s website, Indian banks with a presence in Dubai, including the Dubai International Financial Centre, are Andhra Bank, Axis Bank, Bank of Baroda, Bank of India, Corporation Bank, Indian Overseas Bank, IndusInd Bank, Oriental Bank of Commerce, Punjab National Bank, State Bank of India, ICICI Bank, IDBI Bank, and HDFC Bank.

Venkatesh observed that if the UAE’s economy gets hit because of the EU action, it can come to haunt Indian banks’ balance sheets.

“Most of the Indian corporates, we know, are in a big problem here (in India). So, these assets (financed by branches in these tax havens) will also face stress and strain. In addition, the local lending book there could also face stress and strain. This could lead to a terrible situation for the balance sheets of local branches of Indian banks there,” he said.

The blacklisting of UAE and Bahrain by the EU could cause stress on local as well as foreign banks’ balance-sheets as no European FI will deal with an entity in a blacklisted location

Published on December 10, 2017

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