They have tried their luck to break into overseas markets but with mixed luck
Mumbai: On the international stage, the country’s banking system remains far less impressive than some other sectors operating outside India. Total Indian bank assets of Rs110 trillion ($1.7 trillion) as of March 2015 represent barely 1 per cent of global banking assets and a fraction of China’s $29.5 trillion banking assets — the emerging market that India is so often compared with.
Yet not long ago, a more grandiose future was envisioned. When the Indian economy was last growing quickly, just before and after the financial crisis of 2008, optimism abounded.
There was a sense that Indian banks were ready to compete more aggressively on a global level and become internationally significant. “During the last round of liquidity, a lot of Indian companies went outbound, particularly the large infrastructure and commodity companies,” says Shinjini Kumar, an executive director at PwC in India — and the banks followed.
While Indian bank branches abroad only increased from 138 in 2009 to 178 in 2014, according to the Reserve Bank of India, Indian banks looked to deal funding as their passport to global growth. “It’s not that a large number of branches got opened,” said Ms Kumar. “Banks just got better opportunities to do business. It was their own companies setting up, so they could serve them.”
Confident big Indian companies such as Tata Steel — which bought Anglo-Dutch steelmaker Corus in 2007 for $13.1 billion — led India’s banks abroad. “But that market cooled off as corporations started to have trouble at home,” says Kumar, who points out that every Indian bank abroad had been chasing its clients from home.
Now Indian corporations and banks are struggling with bad loans and Tata Steel followed up a $1.6 billion write-down on Corus in 2013 with a $785 million charge in May this year.
Where Indian banks still do thrive abroad, often via subsidiaries, it is mostly to service India’s diaspora, particularly their world-beating level of remittances at about $70.4 billion in 2014, according to the World Bank.
The medium-term expectation, however, is that Indian corporates will heal their balance-sheets and seek to strike large international deals once more. Indian banks will follow, say analysts, and look to the rest of world as a source of renewed growth.
“In the event of business growing substantially, we would hope to expand,” says Parthasarathi Mukherjee, head of international business at Axis, India’s third-largest private sector bank. “Our experience says that our core market is India — our expertise is here, there’s a better return on capital here. It frankly doesn’t really make sense to look elsewhere.
“The rest of the world is looking at India as an opportunity ... It would be ridiculous for us not to do the same.”
— Financial Times
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