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Indian banks with international operations seem relatively better off lending to corporates in the home market as compared to overseas markets. The contraction in their overseas loan portfolio suggests that they have embarked on this path.
The overseas loan books of banks such as State Bank of India (SBI), Bank of Baroda (BoB) and ICICI Bank shrank by varying degrees in FY21. This came amid global central banks flooding financial markets with liquidity to support their respective economies in the wake of the Covid-19 pandemic.
As of March end, 2021, the overseas loan book of SBI declined a tad (0.13 per cent year-on-year/yoy) to ₹3,56,877 crore; BoB’s portfolio shrank 13 per cent yoy to ₹1,10,514 crore and ICICI Bank’s portfolio contracted 30 per cent yoy to ₹37,590 crore.
Bank of India’s overseas loan book was down 3 per cent year-to-date to ₹1,27,686 crore as of December end, 2020.
3 reasons why market liquidity will stay robust in 2021
Where BoB will focus
Sanjiv Chadha, MD & CEO, BoB, said: “I think there are two pieces to our international operations. Some international operations are doing very well. For instance, we have our subsidiaries in Kenya and Uganda, which are giving us returns of 15-20 per cent every year. They are first rate in terms of performance.”
However, the overseas wholesale business got impacted just the way it got impacted in India.
“This business got impacted in India in terms of margins because the central bank injected liquidity to support the economy. And the amount of liquidity that was injected in the international markets was even more.
“The Fed and other global central banks have access to pools of liquidity which are much larger. So, therefore, Libor dipped to near zero. This means that the wholesale book is not giving the kind of returns it may have given two years back,” Chadha said.
So, BoB will focus on growing overseas subsidiaries and where the return on equity is high and in geographies where the returns are good.
Movement of capital
The BoB chief observed that when it comes to wholesale lending, it is possible to move capital from international operations to India and make more money.
“The Fed has been most liberal in terms of liquidity. That is why interest rates have come down. For instance, it is possible to reduce the size of our book in the US and bring that growth to India and get more return on capital and better margins,” he said.
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