Branches of Indian banks in the United Kingdom (UK) may face problems after a consultation paper by the Bank of England’s Prudential Regulatory Authority (PRA) said retail banking by non-European banks will be ‘significantly impacted’ in the event of liquidity issues.
The regulator feels there could be problems since the branches of non-European banks are not covered under the UK deposit guarantee scheme.
A Bank of England spokesperson, in an email to FE, said,?Continuity of access to transnational accounts (current accounts) is important for depositors. In resolution, where there is uncertainty over the financial position of a firm, such continuity cannot necessarily be provided which could potentially lead to uncertainty and financial instability.?
“In particular non-EEA branches undertaking a CEF in the form of retail banking may be significantly impacted as the PRA does not wish to see retail banking in non-EEA branches beyond the minimum levels, unless there is a very high level of assurance over resolution,? the regulator said.
Banks such as State Bank of India, Bank of Baroda, Bank of India, Canara Bank and Syndicate banks have branches in the UK; ICICI Bank and Axis Bank have subsidiaries in UK. For instance, Syndicate Bank’s London branch business increased by 72.32% from Rs 33,654 crore at December 31, 2012 to Rs 57,994 crore at December 31, 2013. Analysts estimate that Indian banks get 20% of their global business from UK, catering mostly to the diaspora and Indian corporates.
The total business by Indian bank branches was Rs 9.19 lakh crore in Q3 FY14 in all overseas locations while in UK it is estimated to be Rs 1.8 lakh crore.
At present, there are 145 branches of international banks operating in the United Kingdom. In aggregate,they account for 31% (?2.4 trillion) of the total assets of the UK banking system, equivalent to around 160% of annual UK GDP. Of all overseas locations where Indian banks operate, UK tops the list with 30 branches out of 172 worldwide according to RBI data. However, Bank of Baroda executive director P Srinivas believes there is nothing for immediate concern and said, ?The PRA has got in touch with banks to hold talks, however, since it is just a discussion paper and it will take time to get approved.?
International headquartered banks can either operate in UK as subsidiaries or branches. A subsidiary is a separate legal entity from its parent and as such requires its own governance and risk management, as well as meeting capital and liquidity requirements in the country.
A branch forms part of the same legal entity as its head office, and therefore does not have its own capital base or board as this is covered in the head office though local governance is required.
The UK regulator is also proposing to introduce a rule that will require non-EEA (European Economic Area) firms take all steps within their control to have adequate provision made in resolution plans for UK branches. State Bank of India did not respond to an email sent by FE.
