Banks see more credit growth abroad than at home

Source :BL  :Priya Nair:Remya Nair:Mumbai, Dec. 8,2010

Lower interest rates, ample liquidity and a stronger rupee are prompting Indian corporates to borrow overseas. Due to this Indian banks that have a presence overseas are seeing higher credit offtake in their foreign branches compared with their domestic branches.

With more Indian corporates expanding overseas, Indian banks are focusing on their foreign operations in a more concerted manner.

Mr S. Sridhar, Chairman and Managing Director, Central Bank of India, said, “The 3G money is not coming into the system.

There are a lot of overseas borrowings. That is not getting reflected here (domestic credit). It is getting reflected abroad. Indian banks with branches abroad are doing a lot of business. They are giving money there,” he said.

State Bank of India, the country's largest bank is looking to increase the share of overseas operations in total profits from the current 15 per cent to around 25 per cent over the next three to four years, said Mr P. Chaudhari, Deputy Managing Director and Group Executive (International Banking), SBI.

Lower interest rates

Explaining the reason for strong overseas credit, he said, “There is very strong demand for overseas credit because interest rates in dollar, euro and other global currencies are lower. Not only are the interest rates in rupee high, but the rupee is also appreciating. A rupee loan will have both currency risk and interest rate risk.”

Mr Arun Kaul, Chairman and Managing Director, UCO Bank said corporates are raising money in the overseas markets as it is much cheaper. “There is huge liquidity globally and LIBOR has gone down substantially. Rupee has also not been depreciating. So it is cheaper for corporates to raise money in overseas markets”, he said.

At a recent banking seminar, the RBI Governor, Dr D. Subbarao, had said that Indian banks should increase their global footprint opportunistically even if they do not get to the top of the league table.

Opportunities

With the onset of the global financial crisis, there has definitely been a pause to the rapid expansion overseas of our banks.

Nevertheless, notwithstanding the risks involved, it will be opportune for some of our larger banks to be looking out for opportunities for consolidation both organically and inorganically, Dr Subbarao said.

“They should look out more actively in regions which hold out a promise of attractive acquisitions,” he added.

About SBI's overseas plans, Mr O.P. Bhatt, Chairman, said. “We are looking at it not only in terms of our balance sheet, but for our ability to help in a cross-country environment. We want to be able to provide Indian corporates the entire gamut of services for their overseas business – whether it is raising bonds or money, advising and mergers and acquisitions.”Bank of Baroda is looking to expand its presence overseas in geographies such as Kuala Lumpur, East Africa, and London, said Mr M.D. Mallya, Chairman and Managing Director. “We are looking at opening branches overseas in territories where we see potential,” he said.

Currently, the bank's overseas credit growth is about at 35 per, cent against 28-29 per cent growth in domestic credit, but this is because the base is smaller, Mr Mallya pointed out.

Encouraged by the scope for overseas business, Central Bank of India is looking to expand in Africa and Asia. The bank is looking at a branch in Hong Kong and a presence in Bangladesh, Sri Lanka, West Asia and Africa, Mr Sridhar said.