Public sector banks seem to be living by the adage—opportunity in a crisis—seriously these days. At a time when banks globally are cautious on expansion and consider lending and borrowing fraught with risk, Indian banks are going all out to establish their footprint overseas. Whether business from foreign offices will punch above its weight remains to be seen, for now, they are recording a meaty growth over domestic locations.
For instance, while the operating profit of State Bank of India’s (SBI) domestic offices went from Rs 6,797 crore in September 2011 to Rs 6,545 crore in September 2012, the bank’s foreign offices registered a healthy double digit growth of 19.30 per cent—going from Rs 677 crore to Rs 808 crore during the same period. Also, while the number of overseas offices shot up by 6.09 per cent (going from 164 to 174) year-on-year, the domestic offices grew only by 4.13 per cent (going from 13,665 to 14,230).
Interestingly, the profitability of SBI’s foreign offices is growing at a much faster clip than its domestic operations, on several parameters. While interest income in foreign offices grew 29.90 per cent, going from Rs 1,235 crore in September 2011 to Rs 1,605 crore in September 2012, the domestic regions clocked only 12.95 per cent, going from Rs 24,792 crore to Rs 28,002 crore. Similarly, interest income, net interest income and other income from overseas business registered 36.45, 22.22 and 26.27 per cent respectively, while the figures for domestic offices were 19.12, 3.69 and -3.08 per cent respectively.
Likewise, Bank of Baroda’s (BoB) domestic business, deposits and advances grew by 18.8, 19.7 and 17.5 per cent respectively in September 2011 and September 2012, while its overseas business, deposits and advances shot up by 35.1, 36.5 and 33.4 per cent respectively during the same period. Furthermore, the domestic yield on advances dipped from 12.14 per cent in September 2011 to 11.75 per cent in September 12, while the yield on overseas advances went up from 3.37 per cent to 3.49 per cent. Cost of domestic deposits rose from 6.84 per cent to 7.36 per cent, while overseas it dipped from 1.82 per cent to 1.73 per cent.
Besides SBI and BoB, banks such as Punjab National Bank (PNB), Bank of India (BoI), Indian Overseas Bank (IOB), Union Bank of India and Central Bank of India too have similar growth tales to tell.
According to the Reserve Bank of India (RBI), the foreign operations of 16 public sector banks and six private sector banks increased to 244 during 2010-11, against 233 a year ago. SBI leads the pack with the largest network of foreign offices (52) followed by BoB (47). These two banks together account for 51 per cent of the total foreign offices of Indian banks as of March 2012. BoI ranks third with 24 offices.
The largest private lender ICICI Bank has nine such offices, according to the latest RBI statistics. It opened its second branch in Hong Kong recently, making it the first high street branch for the lender in the island city. According to Vijay Chandok, president, international banking, about 28 per cent of the bank’s business was from international operations, as of September 2012.
The UK is the most preferred destination for Indian banks with 30 offices, followed by Hong Kong (18) and Singapore (17). The number of persons of Indian origin residing overseas is the key factor driving the Indian banks’ interest in foreign locations.
Riding high on the market opportunity, PNB, the country’s second-largest public sector behemoth, too is in the process of increasing its global footprint by upgrading its representative offices in Oslo, Norway and Sydney, Australia. CMD KR Kamath, in a recent communication to analysts, revealed that the bank was exploring the possibilities of sttting up a presence in the Maldives, Bangladesh, Pakistan, Canada, Singapore, Mozambique and Brazil. PNB’s overseas business grew by 55.52 per cent year-on-year from `27,622 crore to `42,956 crore.
The Union Bank of India is already setting up branches in Dubai, Sydney & Antwerp (Belgium) and a subsidiary in London. “In principal approval has been received for opening a branch in DIFC in Dubai,” SS Mundra, executive director, Union Bank of India, said in a communication to investors last month.
Mortgage lender HDFC is not lagging behind. Early this month, it opened its first office in Kargil as part of a commitment to bring 10 million families (40 million individuals) into the banking fold. It also opened its first representative office in Abu Dhabi to offer services to the large number of non-resident Indians based in the UAE, besides having wholesale offshore branch in Bahrain that offers corporate, trade finance and advisory facilities to both corporates and ultra high-net worth individuals.
“We will continue to expand our offshore operations to meet the banking requirements of our valued customers,” says Abhay Aima, group head, equities, private banking, third party products, NRI and international consumer business, HDFC Bank.