The Reserve Bank of India in its latest Monetary Policy Report noted that the share in incremental credit of foreign banks has slipped to an all-time low of 0.1 per cent as on September 22. It was at 2.6 per cent for the comparable period a year-ago.

“I’m not surprised,” said a CEO of a private bank. “We barely see one or two foreign banks actively participating in consortiums and even if they do, they are reluctant to do a larger pie as they used to until a few years ago”.

Corp lending

In the corporate lending business, most foreign banks prefer to work with multinational companies who have presence in India and/or large conglomerates and corporates. Many of the MNCs haven’t expanded their operations significantly in post-Covid in India or haven’t had the requirement for fresh term loans, leading to sluggishness of foreign banks in the domestic lending market.

Likewise, the pricing war which has been cutthroat since mid-2021 and is showing no signs of abatement, is also causing foreign banks to be very selective.

According to RBI statistics, the share of foreign banks in loans to Indian borrowers (wholesale and retail) dipped to 3.8 per cent in FY22, from 4.2 per cent in FY20. Their collective credit growth from April to September 2023 stood at a measly 0.4 per cent as against the systemic credit growth of 15.3 per cent. Even in FY23, the credit growth of foreign banks was as low as 4.4 per cent compared to system-level growth of 15.4 per cent.

To put things in context, most foreign banks operate as a branch in India. DBS Bank India and State Bank of Mauritius function as subsidiaries of their overseas parent bank.

“For most foreign bank, their mandate is linked to the headquarter and risk framework and credit policies are accordingly aligned. For some foreign banks operating, even if their non-performing assets rises to 0.5-1 per cent during a fiscal, they are grilled by the overseas regional heads and headquarter,” said a senior foreign banker.

Another factor

Foreign banks withdrawing from the core retail lending business is another factor resulting in their dwindling incremental contribution to the lending pie. “With Citibank also exiting retail business, foreign banks almost have no presence in retail lending and ironically, its retail loans growing faster than other segments,” said another senior banker.

However, it is not all that gloom if the larger picture is seen. According to sources, foreign banks have been active in funding foreign currency loans to domestic companies. “We are either facilitating offshore loans or directly involved in the process,” said a bank quoted above. While the quantum of such foreign currency loans isn’t known, bankers say this should be adequate to bolster 7–10 per cent business growth in FY24.

“The overall credit growth has been strong at a systemic level, and foreign banks have been supporting clients both onshore and offshore. In this period, DBS Bank India has seen strong growth in its local balance sheet as well,” said Rajat Verma, Managing Director and Head - Institutional Banking Group, DBS Bank India.