Small is beautiful - or is it?
Smaller foreign banks seem to have reconciled themselves to becoming niche players.
So what if some of their gloss got erased in the credit crisis of 2008 - Citibank, Credit Suisse, Barclays and UBS are still forces to reckon with in the world of banking and financial services. In India, most foreign banks have little to show for their efforts save for their dazzling heritage buildings. If that seems uncharitable, chew on this: as on September 30, 2010, India had 34 foreign banks with 310 branches, apart from 45 operating through representative offices.
Leave aside the top three, and the big global banks do not have much to show for their efforts in India. As of March 2010, Standard Chartered Bank had 95 branches, HSBC 50 and Citibank 43. Now look at the numbers for Deutsche Bank, DBS and Barclays: 13, 10 and seven, respectively. New entrants like UBS, Credit Suisse and ANZ have singlebranch licences to start with.
It is not as if these foreign banks would not like to grow in the world's second-fastest growing economy. Rather, it is regulation that shackles them. The Reserve Bank of India, under a 1997 commitment given to the World Trade Organization, has to hand out 12 new branch licences to foreign banks every year (including new entrants and existing players). RBI has gone beyond its commitment in many cases, but the numbers have not been as many as the foreign banks want.
Also, policy prescribes that the foreign banks' share of total banking assets should not exceed 15 per cent. Net result: foreign banks, other than the big three, have little choice but to become niche players in areas like private banking, wealth management and investment banking.
In such a scenario, the smaller banks have little option but to chase class rather than mass -which means going after affluent and high net worth private banking clients rather than chasing retail consumers the way an ICICI Bank or an HDFC Bank would. That public sector banks can access lower cost funds and leverage their huge networks also queers the pitch for foreign banks.
"In the short term, our consumer banking business will continue to be centred on our wealth management proposition while we strive to expand our distribution and reach," says Sanjiv Bhasin, CEO of DBS Bank India. Wholesale banking has been the key driver for his franchise and Bhasin looks forward to expanding DBS's wealth management platform, establishing the consumer business and also strengthening its small and medium enterprise or SME proposition. Bhasin's peer - Karan Bhagat, Country Head and MD of Barclays Corporate, India - has a similar view. Just four years young in the country, Barclays has decided to focus on affluent customers in select cities. "A lot can be done with our existing branch set-up as their (high net worth individuals) requirements are less branchfocused," says Bhagat.
So, if the heads of such banks are to be believed, a lack of branches need not be a hindrance to growth. With just one branch, Manisha Girotra, CEO and Country Head of Swiss bank UBS in India, believes foreign banks do not need too many branches. "Globally, retail banking belongs to home banks while foreign banks play at the higher end of the pyramid," says Girotra, 41, who is better known for her deal-making acumen, as is UBS in India. Girotra believes that domestic banks are not her competition, but players in wholesale banking and high-end retail are. "It is all about a one-bank solution coupled with a global platform which gives us a competitive edge," she adds.
Barclays, too, sees synergies with domestic clients who have global ambitions. "Our overseas dominance helps local players in their future expansions," says Bhagat. Then there are the Johnnies come lately with a commercial banking licence but with no immediate plans to go retail. Like Credit Suisse, a Swiss bank that has re-established itself in India over the past four years. "A banking licence allows us to complete a suite of products," says Mihir Doshi, MD and Country Head of Credit Suisse India. "But we will continue to remain an institutionfocused bank," he adds.
Those plans might change if the amendments that are expected in 2011 in regulations for foreign banks take place. Way back in February 2005, the RBI had released a "roadmap for presence of foreign banks in India". In the first phase, between March 2005 and March 2009, foreign banks wishing to establish a presence in India for the first time could either choose to operate through branches or set up a 100 per cent wholly-owned subsidiary or WoS, following the one-mode presence criterion.
Foreign banks already operating in India were also allowed to convert their existing branches into WoSs, which were to be treated on par with branches. No foreign bank, however, applied to establish itself as a WoS or to convert into a WoS during the first phase.
In future, do not expect any radical reform like an increase in the cap for foreign direct investment in private banks, which is at 74 per cent. Rather, the RBI is expected to issue guidelines that will enable foreign banks to bag more licences.
Foreign banks are also hopeful of being allowed to acquire existing franchises. "Consolidation opportunities, if they come, could give us a head start," says Girotra. If such expectations are belied, foreign banks are quite reconciled to going back to Plan A - operate with few branches, even one, and go after the creamy part of the ample Indian market.
Leave aside the top three, and the big global banks do not have much to show for their efforts in India. As of March 2010, Standard Chartered Bank had 95 branches, HSBC 50 and Citibank 43. Now look at the numbers for Deutsche Bank, DBS and Barclays: 13, 10 and seven, respectively. New entrants like UBS, Credit Suisse and ANZ have singlebranch licences to start with.
It is not as if these foreign banks would not like to grow in the world's second-fastest growing economy. Rather, it is regulation that shackles them. The Reserve Bank of India, under a 1997 commitment given to the World Trade Organization, has to hand out 12 new branch licences to foreign banks every year (including new entrants and existing players). RBI has gone beyond its commitment in many cases, but the numbers have not been as many as the foreign banks want.
Also, policy prescribes that the foreign banks' share of total banking assets should not exceed 15 per cent. Net result: foreign banks, other than the big three, have little choice but to become niche players in areas like private banking, wealth management and investment banking.
In such a scenario, the smaller banks have little option but to chase class rather than mass -which means going after affluent and high net worth private banking clients rather than chasing retail consumers the way an ICICI Bank or an HDFC Bank would. That public sector banks can access lower cost funds and leverage their huge networks also queers the pitch for foreign banks.
So, if the heads of such banks are to be believed, a lack of branches need not be a hindrance to growth. With just one branch, Manisha Girotra, CEO and Country Head of Swiss bank UBS in India, believes foreign banks do not need too many branches. "Globally, retail banking belongs to home banks while foreign banks play at the higher end of the pyramid," says Girotra, 41, who is better known for her deal-making acumen, as is UBS in India. Girotra believes that domestic banks are not her competition, but players in wholesale banking and high-end retail are. "It is all about a one-bank solution coupled with a global platform which gives us a competitive edge," she adds.
Barclays, too, sees synergies with domestic clients who have global ambitions. "Our overseas dominance helps local players in their future expansions," says Bhagat. Then there are the Johnnies come lately with a commercial banking licence but with no immediate plans to go retail. Like Credit Suisse, a Swiss bank that has re-established itself in India over the past four years. "A banking licence allows us to complete a suite of products," says Mihir Doshi, MD and Country Head of Credit Suisse India. "But we will continue to remain an institutionfocused bank," he adds.
Those plans might change if the amendments that are expected in 2011 in regulations for foreign banks take place. Way back in February 2005, the RBI had released a "roadmap for presence of foreign banks in India". In the first phase, between March 2005 and March 2009, foreign banks wishing to establish a presence in India for the first time could either choose to operate through branches or set up a 100 per cent wholly-owned subsidiary or WoS, following the one-mode presence criterion.
Foreign banks already operating in India were also allowed to convert their existing branches into WoSs, which were to be treated on par with branches. No foreign bank, however, applied to establish itself as a WoS or to convert into a WoS during the first phase.
In future, do not expect any radical reform like an increase in the cap for foreign direct investment in private banks, which is at 74 per cent. Rather, the RBI is expected to issue guidelines that will enable foreign banks to bag more licences.
Foreign banks are also hopeful of being allowed to acquire existing franchises. "Consolidation opportunities, if they come, could give us a head start," says Girotra. If such expectations are belied, foreign banks are quite reconciled to going back to Plan A - operate with few branches, even one, and go after the creamy part of the ample Indian market.
