Foreign lenders’ loan book just 4% of banking system

Citibank’s sale of its retail business to Axis Bank is complete and with that India’s oldest foreign lender has joined the list of overseas banks to scale down its India operations. Over the years, Deutsche Bank, Barclays Bank, UBS, Merrill Lynch and BNP Paribas have trimmed their businesses in India. Most notable exits or sale of a vertical are: Deutsche Bank selling its credit card business to IndusInd Bank in 2011, surrender of banking licence by Morgan Stanley in 2013 and the exit of the wealth management business by BNP Paribas in 2020.

Of the 45 foreign banks which have operations in India, HSBC, Citibank, Standard Chartered Bank, Deutsche Bank and JP Morgan Chase Bank are the top five in terms of assets. However, the share of all foreign banks put together amounts to little under 4% of the loan book of the banking system. As of March 31, loans and advances of the foreign banks stood at Rs 4.7 trillion while that of the banking sector as a whole stood at Rs 122 trillion, according to the RBI’s Trend and Progress report.

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In terms of presence, foreign banks have close to 861 branches in India as of January 31, with Standard Chartered Bank leading the chart at 100 branches, followed by Citibank and HSBC. Most of the branches of foreign banks are clustered around metropolitan and urban areas, in a contrast with private sector banks which are now expanding their base in semi-urban and rural areas to push the next phase of growth.

Giving foreign banks relaxation in priority sector lending targets, licensing structure, rationalising corporate tax rate and lower capital requirements might incentivise them to rethink their India strategies, global advisory firm Grant Thornton earlier said in a report. The RBI in 2013 had issued a discussion paper calling for tighter norms for foreign banks having operations in India. The RBI had proposed that foreign banks should meet priority sector lending, minimum capital requirements and should ring-fence Indian operations from global business.

“Apart from providing fungibility across PSL targets for foreign banks to focus on their niche expertise, emerging sectors such as ESG, sustainability, renewable energy, financing electric vehicles, health infrastructure could also be included within the ambit,” Vishesh Chandiok, CEO, Grant Thornton Bharat, had said in the report.

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Apart from this, foreign banks were also asked to set up wholly owned subsidiaries, with minimum capital requirement of Rs 300 crore. Of the 45 foreign banks, only two have adopted the subsidiary model — SBM Bank (India) and DBS Bank India. Among the string of foreign banks either exiting or scaling down in India, these two banks are outliers. Other than carving out an Indian arm, DBS Bank acquired Lakshmi Vilas Bank in 2020 while Mauritius-based SBM Bank is carving out a niche in the digital banking space by partnering with several startups.