Destination India for foreign banks

Nanoo Pamnani

Most major foreign banks, with a strong international presence, recognise India’s relative economic performance in relation to other emerging market economies and its potentially huge market. The recent regulatory changes, combined to some extent with environmental factors, locally and globally, might result in a consolidation in the foreign bank segment in India.

Smaller players, whose dependence was largely linked to offshore lending being counted towards their capital, will find themselves short on capital and may decide to exit rather than invest incremental capital in marginal operations. A few have already exited. Additionally, banks whose global operations have been severely impacted by problems in either their home country or other international operations may also consider consolidating their position or by going slow on fresh investments. Larger banks will use this opportunity to grow and acquire market share.

The issue on re-definition of capital is one that impacts the smaller foreign banks, as the larger banks have the ability to neutralise the impact of the changes in definition of capital through accretion of local book profit. Therefore, while the smaller banks would review their India strategy in the light of these changes, foreign banks with scale are unlikely to do so.

Citigroup, as the most profitable foreign financial institution in India, continues to look for expansion and investment opportunities. We are pressing full steam ahead and there is no strategic pause. We have been in India for the last 99 years and our strong commitment for the future is evidenced by opening of our Salomon Smith Barney (SSB) investment banking or equity brokerage operations, new full-service branches across the country (taking us to 20 branches shortly), 50 new ATMs, Suvidha roll-out across major cities, expanded corporate target market (small and medium enterprises), growth of consumer finance (Associates and CitiFinancial), continuing investment in technology, and growth of technology companies, both in software (OrbiTech and i-Flex) and ITES (e-Serve).

India has the 4th largest economy in emerging markets by nominal GDP and 4th largest economy globally by purchasing power parity. It represents a major market across all the four dimensions of banking (corporate, retail, commercial and investment) for those foreign banks which see emerging markets as a growth and diversification engine.
Strategically, there is a scope to play a very critical role for a foreign financial institution like Citigroup in terms of bringing in new and more sophisticated products and technology and linking its global product /emerging market /OECD experience to India as it gets more integrated with the global economy.

India is also particularly attractive to banks and financial institutions for setting up IT-enabled services and technology support services for global operations, given India’s natural advantages in these sectors and several banks are setting up such operations. Citigroup was the first to set up a software company (COSL, now OrbiTech) at SEEPZ (Mumbai) in 1985. Also, our ITES company — e-Serve — started operations in March 1999, and today supports Citigroup processing in 20 countries, including the US. We see most other major foreign financial institutions following suit.

(The author is CEO of Citibank India)