Foreign banks to go slow in India, says IFC official

International Finance Corporation’s (IFC) principal banking sector specialist Michael J Higgins has said that although India will continue to attract the attention of global banking players, it is less likely that foreign banks will aggressively pursue penetration or go for acquisition of an Indian bank in future due to severe capital constraints.

Speaking to FE on the sidelines of an event organised by International Finance Corporation here on Friday, Higgins said that in the current scenario, capital became scarce for foreign banks that had traditionally been very active in the western countries. If times were good, these banks otherwise would have actively pursued the expansion strategies across the developing economies like China and India through organic or inorganic routes, he added.

“Post the recent global crises that shattered the leading banks across the globe, their acquisitions or strategic investments in Indian banks in future are ruled out for the moment,” he said. Higgins said that in spite of the recent turmoil in the US financial services sector, absolute nationalisation of the crisis-hit American banks would not happen at all as such a move tends to hamper the banks’ long-term capital raising capacities in future.

The regulators and American bureaucracy are against absolute take-over of American banks by the US government and creating a banking model where shareholders have no say in the future. He advocated for a dire need to restructure the bad loans in the global banking system in a bid to fight the current economy crises.

Higgins said he expected the regulators in developed as well as developing countries to expand their ambits to all kinds of unregulated activities covering the off-balance sheet transactions through a tighter control, post the collapse of financial institutions in the US. “Also, to avoid a systemic collapse in the global banking space in future, a single institution should take on a much larger regulatory oversight role over and above the role of country wise banking regulators,” he said.