News: Indian banks in pursuit of dollar dreams

(TT 10/04/2006) New Delhi - Domestic banks are looking to aggressively expand their overseas presence as they chase dollar dreams and a large Indian diaspora.

On Monday, Punjab National Bank (PNB) said it had obtained the necessary approvals from the regulatory authorities to set up a full-fledged subsidiary in London. It will be established on Thursday (April 13) as a private limited company and bear the name Punjab National Bank International Ltd, the bank informed the Bombay Stock Exchange (BSE).

PNB already has a representative office in London which was set up in 2003. “This is our first overseas subsidiary and much more than a branch,” a senior executive of PNB told The Telegraph.

PNB has also received RBI clearances to set up full-fledged branches in Vancouver and Hong Kong and an offshore banking unit in Singapore. A subsidiary, unlike a branch, operates as a separate business entity that enables the company to grow in overseas locations and compete with local banks.

But PNB isn’t the only one with overseas expansion plans: State Bank of India (SBI), ICICI, Bank of India and Bank of Baroda are also looking to establish branches and subsidiaries abroad.

SBI has mapped out major overseas plans — both through the acquisition as well as the inorganic route. The bank is planning to enter Pakistan and is expecting to set up over 20 additional branches in other countries of South Asia in the next three years.

The bank, which has recently taken over mid-sized banks in Mauritius and Indonesia, is eyeing other buyouts as well.

SBI chairman A K Purwar has gone on record saying that the bank has “infinite appetite for more acquisitions”.

SBI has been looking to establish a full-scale retail banking operation in Singapore but has been denied approvals by the Monetary Authority of Singapore. It has also identified other countries in South Asia as a potential market to expand operations beyond the shores of the country. It is aiming to increase the number of branches from seven at present to 27 in the Saarc region over the next three years.

He said SBI was also looking at entering into alliances and joint ventures with local institutions in other countries to expand its non-banking services such as credit cards, mutual funds, merchant banking and insurance.

Bank of India and Bank of Baroda are also aggressively looking to spread their wings abroad.

India’s largest private sector bank, ICICI Bank, is present in 11 countries through branches, representative offices and wholly-owned subsidiaries. It has three subsidiaries in the UK, Canada and Russia; branches in Singapore and Bahrain, an offshore banking unit in Mumbai and representative offices in the US, China, the UAE, Bangladesh and South Africa. Its UK subsidiary has four branches and the Canada subsidiary five branches.

Analysts said one of the primary reasons for Indian banks seeking overseas locations is to augment their capital base in run up to the Basel II norms that come into effect from March 31, 2007.

Under Basel II, the capital requirements are more risk sensitive and requires banks to hold capital not only for credit and market risk but also for operational risks. Moreover, they are required to hold capital for concentration risks and liquidity risks.

Besides, overseas presence offers banks to scale up their operations. In terms of sheer size, SBI, India’s largest bank, is the only bank to be ranked in the top hundred (87) among the top banks globally.

Analysts said with consolidation in the domestic market not coming through because of political reasons, banks are now increasingly looking towards overseas markets to scale up their operations.