Indian banks hit the rule wall in Singapore, HK

Stricter norms in Singapore and Hong Kong have queered the pitch for many mid-sized Indian public sector banks. More than a dozen Indian banks have operations in these two countries.

Ahead of the financial turmoil, the Monetary Authority of Singapore had said that whatever liabilities foreign banks had in Singapore dollars, equivalent assets should be created in the same currency.

After the financial crisis, with profitability of banks from overseas branches falling, Indian banks are finding it difficult to adhere to the regulation.

"In Singapore, regulations on asset management are turning out to be harsh. We hope the regulations are eased and expect some relaxation. We are careful on expanding overseas and are not very bullish outside India," said an executive of a public sector bank with a branch in Singapore.

Recently referring to the new restriction by the monetary authority of Hong Kong capping the business growth of foreign banks, SA Bhat, chairman and managing director of IOB, had said, "There are certain other economies (Hong Kong) where local monetary authorities have put some restrictions on growth. They don't allow the banking system to grow beyond a certain percentage. They have also started giving additional incentives for maintaining their deposit base as well as bringing new deposits into their countries. So, the overall growth is going to be good, but not extraordinary."

"The Reserve Bank of India also advised some individual banks who sought branch licences in Singapore and Hong Kong to reconsider their plans, as these countries were crowded with Indian banks," said an official from a public sector bank.

As a result, several banks are reassessing their expansion plans overseas.

Corporation Bank, which was earlier planning to open branches in Singapore, London, Saudi Arabia and Hong Kong, is planning a branch only in Hong Kong in the short term.

"We are reassessing some of our branch expansion plans in Europe as the recession is not yet over. In some other countries, like the Gulf countries, either the local authorities are not very keen to allow foreign branches or the business is not viable," said an official from Corporation Bank.

In several countries, like New Zealand, banks have been asked to take the subsidiary route rather than the branch route for expansion.

"We dropped the idea of opening a branch in New Zealand as they wanted us to take the subsidiary route, in which the capital requirement is generally very high," said an executive from IOB.

With the minimum regulatory capital to set up a banking arm in Malaysia very high, Bank of Baroda, Indian Overseas Bank and Andhra Bank recently signed an agreement to set up a subsidiary bank in Malaysia.

Focus on volumes
With margins coming down due to the financial turmoil, bigger banks are focusing on volumes to beat the slowdown.

For example, State Bank of India is focusing on retail banking in Bangladesh, Mauritius and London. "Till now, we have been focusing more on corporate clients. Now, we are looking at retail banking. We want at least 20 per cent of our international business to come from retail customers in the next two-three years," said an executive from SBI, which recently chalked out an ambitious overseas expansion plan.

"In overseas markets, margins are lesser this year and so we will concentrate more on volumes," said a PNB official.