DIFC on Indian lenders' radar

Dubai: Indian banks and financial services companies were conspicuous by their absence at the Dubai International Financial Centre (DIFC) in the first few years of its existence as global banking majors rushed to get a foothold in the new regional financial centre.

During the last two years, momentum has picked up in the number of Indian firms joining the DIFC's financial services community. Currently, there are a dozen Indian institutions ranging from banks, asset management companies and financial advisory services that are operating from the DIFC. According to DIFC officials, what we have seen so far is just a beginning and they expect more Indian firms to join the DIFC in the near future.

"Over the past few years, we have sought to enhance our relationships with the financial services sectors of major emerging Asian markets like India. DIFC's world-class regulatory framework, high-quality support services, zero-tax environment and strong links with international financial markets make it the ideal platform for leading Indian companies tap opportunities in the region," Abdullah Mohammad Al Awar, CEO of the DIFC Authority, said.

Some of the recent proactive steps like the seminar organised by the DIFC — ‘The India-UAE Partnership: Investments, Opportunities and Synergies' — last October, have helped to improve the awareness of the DIFC in the Indian banking and financial services community.

State Bank of India (SBI), the largest banking group in India, was the first Indian bank to obtain a Category 1 banking licence from the regulator, the Dubai Financial Services Authority (DFSA) in Dec-ember 2006. However, ICICI Bank, India's largest private sector bank, was the first to secure a licence to operate from the DIFC with a category 4 licence in December 2005.

"The UAE market consists of a large number of India based corporates and firms managed by Indian professionals. Lots of companies for whom the Indian banks provide credit facilities in India have already started operations in the UAE or are about to start. For all these companies, Indian banks would be the obvious choice," said A.J. Vidyasagar, CEO of SBI in the DIFC.

A Category 1 licence enables banks operating in the DIFC to offer a wider range of financial services within the UAE and the region ranging from arranging investments for retail customers and offer credit to small and medium enterprises. Additionally, the DIFC-based banks can provide trade finance and short-term working capital loans including Letters of Credit (LC) and bank guarantees, term loans, project finance and as well as syndication of credit.

In the absence of no new banking licences issued by the UAE Central Bank, many Indian banks see DIFC as the launch pad for their expansion in the UAE and the region. While some Indian banks have opted for onshore representative offices, some like ICICI Bank have a presence in the country through both an onshore representative office and a DIFC branch.

"I would not call the DIFC branch a substitute [to an onshore branch], since a full commercial banking licence enables you to increase your reach and cater to a wider segment. However, it has greatly helped in establishing and reinforcing the ICICI brand in the region," said Pankaj Ganjoo, Regional Head, GCC (Gulf Cooperation Council) and Africa of ICICI Bank.

ICICI Bank has taken the wealth management route to set its foothold in the DIFC. The bank plans tap into the sizeable chunk of wealth management business of non-resident Indians (NRIs) based in the region. "The UAE is home to quite a sizeable NRI population. ICICI Bank has always followed the philosophy of ‘Follow the Indian' across the globe," said Ganjoo.

A large chunk of this NRI population belongs to the affluent business class. There is also a growing segment of top management executives in the corporate sector. Indian financial institutions provide the best platform for investment opportunities back in India.

Bankers and fund managers say that with the strong economic linkages between the Gulf and India, Indian institutions can no longer afford to ignore the opportunities. The UAE is India's second-largest trading partner and home to a large number of expatriate Indians. Thus the financing of traditional trading and commercial opportunities have been supplemented with the more sophisticated financial needs of firms and high net worth individuals.

Bankers say the global financial crisis and the subsequent deleveraging by companies have not impacted the demand for finance from the UAE and Gulf-based companies. Axis Bank (formerly UTI Bank), the third-largest private sector bank in India, expects its financing activity in the region to grow 30 per cent this year, Srinivasan Varadarajan, Executive Director, told Gulf News in a recent interview. "There is growing demand for financing from companies of all sizes in the UAE and the region and the financial crisis has not impacted loan demand and the expansion plans of a large number businesses in the region," he said.

For most Indian banks, the DIFC presence is their first step towards wider regional expansion. "It is a strategic hub to tap opportunities in the region. Our DIFC branch will serve as a base for targeting the entire Middle East and Africa region," said K.R. Kamath, Chairman and Managing Director of Punjab National Bank.