FOREIGN BANKS IN INDIA

AN INDUSTRY ANALYSIS
INDUSTRY INTRODUCTION
Ò By Banking Regulations Act 1949,
‘The accepting for the purpose of lending or
investment of deposits of money from the
public repayable on demand or otherwise and
withdrawable by cheque, draft,order or
otherwise.’
Ò Foreign Bank : Owned by private foreign
companies, registered and headquartered
outside India.
• Credit Cards
• ATMs cum • Asset
Shopping Cards Management
• Bank assurance • Portfolio
Management
• Mutual Funds Services
• CASA

RETAIL CORPORATE
BANKING BANKING

PRIVATE BUSINESS
BANKING BANKING

• Wealth • Project Financing

Management • Working Capital
• NRI Services Financing
• Trade Financing
 EXAMPLE OF SERVICE DIFFERENTIATION
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CONTD…

Ò Minimum account opening cheque of Rs. 3

lakhs required.
Ò (Minimum Balance Requirement - Rs 1 Lakh)
HISTORY MATTERS…
TIME PERIOD GENERAL BANKING FOREIGN BANKS
The General Bank of India , 1842, the Oriental Banking
Early phase from 1786 to Bank of Bengal (1809), Bank Corporation established the
1969 of Bombay (1840) Bank of first Anglo-Indian Commercial
Madras (1843) 1920, Bank at Bombay, First
Imperial Bank of India, 1865 quarter of Twentieth Century
Allahabad Bank exclusively by :(1) The Mercantile Bank Ltd.,
Indians, Banking Regulation (2) Grindlays Bank Ltd.,
Act 1949 , (3) The Chartered Bank and
1955: Nationalisation of (4) The Hong Kong and
State Bank of India. Shanghai Banking
1959: Nationalisation of SBI Corporation
subsidiaries.
1961: Insurance cover
extended to deposits.
1969: Nationalisation of 14
major banks.
 INTRODUCTION CONTD..
Nationalisation of Indian 1971: Creation of credit 1979 : European Asian Bank
Banks and up to 1991 prior guarantee corporation. 1980 : Bank of Oman Ltd
to Indian banking sector 1975: Creation of regional 1981 : Bank of Ceylon
Reforms rural banks.
1980: Nationalisation of
seven banks with deposits
over 200 crore

New phase of Indian This phase has introduced The total number of FBs had
Banking System with the many more products and risen to 44 by the year
advent of Indian Financial & facilities in the 1998-1999
Banking Sector Reforms banking sector
after 1991
INDUSTRY STRUCTURE

Development Non-Banking
Finance Institutions Financial Companies
(DFIs) (NBFCs)

FINANCIAL SYSTEM OF
INDIA

Post Office/ Small

Banks
Savings Schemes
 No. OF BRANCHES
UBS AG 1
JSC VTB Bank 1
Calyon Bank 6
Oman International Bank 2
Mizuho Corporate Bank Ltd 2
J P Morgan Chase Bank 1
Antwerp Diamond Bank 1
Krung Thai Bank 1
Chinatrust Commercial Bank Ltd 1
Cho Hung Bank 0
Bank of Ceylon 1
State Bank of Mauritius Ltd 3
Standard Chartered Bank 90
Arab Bangladesh Bank Ltd 1
Bank Internasional Indonesia 1
DBS Bank Ltd 10
Barclays Bank 5
BNP Paribas 9
Sonali Bank 2
Societe Generale 2
Hongkong & Shanghai Banking Corporation Ltd 47
Deutsche Bank 13
Citibank 41
Bank of Tokyo Mitsubishi 3
Bank of Nova Scotia 5
Mashreq Bank 2
Bank of Bahrain & Kuwait BSC 2
Bank of America 5
American Express Bank Ltd 1
Abu Dhabi Commercial Bank Ltd 2
ABN AMRO Bank 30
STRUCTURE CONTD… MARKET SHARE

ADVANCES MADE (in crore Rs)

ADVANCES MADE (in crore Rs)

39920
37516

27589

16660

10551
8798
4805
3356 2991 3710 2723
1763 1119
137 698 700 29 287 45 148 703 10 9 10 2 458 366 11 303 0
CONTD…
DEPOSIT BASE (in crore Rs)
DEPOSIT BASE (in crore Rs)

51677
49970

41802

15960
14147
12486

6023
4167 29762076 3353 3587
509 330 81 31 472 86 818 61 2 103 21 1148 187 766 825 42 372 0
CONTD…
PROFIT PER EMPLOYEE (in Rs lakh )
PROFIT PER EMPLOYEE (in Rs lakh )

253.63

130.00
110.85

70.76 73.0078.39 72.16

49.00 45.12
41.96 41.57 38.5834.00
34.1238.14
25.10 26.90 23.8220.00
14.00 18.00 16.06 16.87
1.96 7.50 2.79
0.62 0.00 0.00

-109.66
INDUSTRY ENVIRONMENT : REST ANALYSIS

REGULATORY
ENVIRONMENT

TECHNOLOGICAL FOREIGN ECONOMIC

ENVIRONMENT BANKS ENVIRONMENT
IN INDIA

SOCIAL
ENVIRONMENT
 REULATORY ENVIRONMENT
Ò In February 2005, the banking regulator, the Reserve Bank of
India (RBI), unveiled a road map for foreign banks. The road
map has two phases :

• New banks – first time presence

• Existing banks – Branch expansion policy
Phase I: (March • Conversion of existing branches to Wholly Owned
2005 to March Subsidiaries
2009)

• According Full National Treatment to Wholly Owned

Subsidiaries of Foreign Banks
• Dilution of Stake in Wholly Owned Subsidiaries
Phase II: (April
2009) • Mergers and Acquisition of any Private Sector Bank in India
 CONTD…
Ò The setting up of a wholly-owned banking
subsidiary in India should have the approval of the
home country regulator.
Ò Economic and political relations between India
and the country of incorporation of the foreign
bank
Ò Financial soundness of the foreign bank &
Ownership pattern of the foreign bank
Ò Rating of the foreign bank by international rating
agencies, International presence of the foreign
bank.
CONTD..
Ò The minimum start-up capital requirement for a
WOS would be Rs. 3 billion and the WOS shall
be required to maintain a capital adequacy
ratio of 10 %.
Ò The parent foreign bank will continue to hold
100 per cent equity in the Indian subsidiary for
a minimum prescribed period of operation.
Ò The composition of the Board of directors as
per RBI guidelines.
ECONOMIC ENVIRONMENT

Ò Subject to monetary environment

Ò Need to adhere to CRR, SLR

Ò Health of parent organization

Ò Genaral economic environment.

SOCIAL ENVIRONMENT
Ò As per the RBI guidelines foreign banks have to
extend 32 per cent of their lending to priority
sector.
Ò Loans granted to agriculture, micro and small
(manufacturing and service) enterprises, micro
credit, education and housing fall under the ambit
of priority sector lending by the Indian banks.
Apart from these sectors, the export credit also
forms a part of the priority sector lending in case
of foreign banks.
 TECHNOLOGICAL ENVIRONMENT
Ò Modern banking is un-thinkable without
Information Technology (IT).
Ò Negotiated Dealing System (NDS) for Government
Securities, the Real Time Gross Settlement
(RTGS), National Electronic Funds Transfer (NEFT)
and the Centralised Funds Management System
(CFMS), Structured Financial Messaging System
(SFMS) over the INFINET, all are the products of IT
in banking.
Ò How swiftly and efficiently RBI over entire banking
network affects the performance of foreign banks.
INDUSTRY ATTRACTIVENESS
Ò Only 59% of the nearly 90 million farm
households in India have bank accounts. Only
51% have access to formal credit.
Ò Emerging nation , growing economy.

Ò Despite financial turmoil worldwide , foreign

banks in India are earning profit.
(Amount in Rs. crore)

Item 2007-08 2008-09 PERCENTAGE

CHANGE

Net Profit 6,612 7,510 + 13.58%

INDUSTRY PERFORMANCE

Ò Next slide
 Bank Assets Deposits Advances Investments
Group 2008 2009 2008 2009 2008 2009 2008 2009
Nationalis
ed Banks 43.5 44.2 48.4 49.1 45.3 47.2 42.7 41.7

State
Bank 23.4 24.4 23.3 24.8 24.0 24.6 22.4 24.7
Group
Other
Public 3.0 3.3 2.2 2.8 3.3 3.4 2.8 3.5
Sector
Bank
Old
Private 4.5 4.4 5.0 4.9 4.5 4.3 4.6 5.0
Sector
Banks
New
Private 17.2 15.2 15.3 13.2 16.4 14.9 19.1 16.2
Sector
Banks
Foreign 8.4 8.5 5.8 5.3 6.5 5.5 8.4 9.0
Banks
INDUSTRY FUTURE

Ò April 2009 has come and gone, and no foreign

banks are clamouring at the gates of RBI.
Ò International Finance Corporation's (IFC)
principal banking sector specialist Michael J
Higgins has said that although India will
continue to attract the attention of global
banking players, it is less likely that foreign
banks will aggressively pursue penetration or
go for acquisition of an Indian bank in future
due to severe capital constraints.
CONTD…

Ò But still, following are the list of foreign banks

going to set up business in India
Ò Royal Bank of Scotland

Ò Switzerland's UBS

Ò US-based GE Capital

Ò Credit Suisse Group

Ò Industrial and Commercial Bank of China

COMPETITIVE ANALYSIS : PORTER’S
MODEL
Threat from
expanding Indian
Public & Private
Sector Banks

Strong Different Strong

bargaining foreign bargainig
power of
power of banks in customer
supplier India (32)

New
Entrants
( Although
very
regulated )
 STRATREGIC GROUPS AS OF 2008-09
Strategic Group – 1 Strategic Group - 2 Strategic Group - 3

Weak Performance Average Performance Performing Well

1. Krung Thai Bank 1.Barclays Bank 1.Bank of Tokyo-Mitsubhishi

2. Sonali Bank 2.Scotia Bank 2.HSBC Holdings
3. Abu Dhabi Commercial 3.DBS 3.Citibank
Bank 4. BNP Paribas 4.Deutsche Bank
4. American Express 5.Standard Chartered Bank
Banking Corporation 6.ABN Amro Bank
5. AB Bank 7.Credit Agricole Indosuez
6. Bank of Ceylon (Calyon Bank)
7. Chinatrust Commercial 8.Bank of America
Bank 9.Mashreq Bank
8. JSC VTB Bank 10.Bank of Bahrain and
9. Societe Generale Kuwait
10.UBS AG
11.Mashreq Bank