In a special report Foreign banks in India-2003 results, Fitch said that while they account for only about 5 per cent of bank deposits and 7 per cent of bank loans, they nevertheless comprise an important part of the banking sector in metropolitan areas.
The four largest foreign banks with full service presence across all products account for over 70 per cent of the total assets of all foreign banks as at end-March 2003. Although limited in their geographical reach on account of a hitherto restricted branch licensing policy of the regulator, these four foreign banks have supported their franchise using the philosophy of taking the bank to the customer through the use of technology and alliances with local banks.
A few foreign banks have also relied on inorganic growth through acquisitions. Standard Chartered Bank (StanChart) concluded its acquisition of ANZ Grindlays Indian operations during fiscal 2003, becoming the largest foreign bank and among the top 15 banks overall, in India. The ING group, which inherited a 10 per cent stake in Vysya Bank following its worldwide merger with Bank Brussels Lambert in 1998, acquired management control in the bank in December 2002 and renamed it ING Vysya Bank. Compared to their local counterparts, the better performing foreign banks are characterised by a greater proportion of fee income and higher net-interest margin and return on assets.
It was noted that foreign banks have generally enjoyed strong support from their parents, including infusions of capital to meet the regulatory minimum capital adequacy ratios and provisioning requirements to support asset quality. The reported capital adequacy ratios of most foreign banks in India were above the regulatory minimum of nine per cent. Since foreign banks in India cannot raise Tier-I capital locally, incremental capital requirements were met by the parent in the form of deposits with local branches. During fiscal 2003, HSBC and StanChart received additional capital from their parents following the revision made by RBI in the calculation of Tier-I capital. Four others American Express Bank, Credit Lyonnais, Credit Agricole and Societe Generale, with low capital adequacy ratios, also received capital infusions from their parents.
The asset quality of large foreign banks is better than the average for local banks. While loan quality has been a problem for some medium and small foreign banks, loan loss coverage ratios are usually high and are supported by the periodic capital infusions by the parent.