The government not only is keen to deepen financial inclusion by expediting new bank licences, but wants domestic banks to reach aggressively to foreign shores.
The idea is to tap the perceived credibility advantage that Indian banks could have in the foreign markets due to their being regulated more strictly, when the global financial system is in the throes of recovering from a crisis.
The finance ministry has asked public sector banks (PSB) to finalise within three weeks a strategy paper for their organic (more branches and customers) and inorganic (acquisition) expansion overseas, officials close to the development told FE.
The ministry has constituted a committee comprising some major PSBs, led by State Bank of India (SBI), and includes Punjab National Bank (PNB), Bank of India (BoI), Indian Overseas Bank (IOB), Central Bank of India, Canara Bank, Bank of Baroda (BoB) and Union Bank of India. The panel was set up after a couple of meetings held in this regard by the department of financial services secretary DK Mittal.
The banks, which can expect financial support from the government for the overseas expansion, have been told to go for a coordinated approach keeping in mind long-term benefits rather than going in for short-term gains by competing with each other to grab a share of the same market abroad.
In a bid to prioritise foreign markets for expansion and to finetune the strategy, the newly formed committee ? headed by the SBI managing director Hemant Contractor ? will look into the current level of bilateral trade that India has with other countries, in addition to the markets with maximum potential to boost bilateral trade and investment. It will also study the size of Indian population in different countries and countries from where remittances of Indian diaspora are the most.
The banks have been told to go for an integrated approach as there have been instances in the past where in markets such as the UK, some PSBs have competed with each other leading to wastage of resources including manpower and capital, the sources said. ?The question is how to leverage the collective potential and strength of PSBs,? an official said.
Instead, the new approach will be to see that if a PSB already has a substantial presence in one market, the others should form joint ventures (JV) with that bank in that market and then focus on another markets abroad where there is good potential. JVs can also help the PSBs in overcoming the tough prudential norms in many countries to start banking business there.
With the global financial crisis and collapse of many foreign banks, Indians overseas are favourably inclined to the conservative approach of Indian banks, and therefore, this is could be a good time to get more customers abroad, sources said. Besides, the ongoing crisis in many countries also has provided the opportunity of acquiring many assets overseas at a discounted value, they said.
A byproduct of the JVs formed by PSBs now will be that it can help them later if and when they go for consolidation, they added.
When contacted, a senior officer looking at international operations of a leading PSB told FE on condition of anonymity that there was indeed a high level of trust that Indian banks enjoy with Indians overseas and that it cuts across geographies.
