value partners report_destination india_an attractive opportunity for foreign banks

Destination India: an attractive opportunity for foreign banks

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“Destination India: an attractive opportunity for foreign banks”

September 2011

By Karan Paul, Dominic Arena, Leo Wang and Roland Topic

Special thanks to the clients and industry executives who have made themselves available for

interviews.

This report is published by Value Partners Management Consulting.

If you would like an electronic copy of this report, please write to:

[email protected]

For more information about the issues raised in this report, please contact:

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Copyright 2011 © Value Partners Management Consulting

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Value Partners Mumbai

C-220, 215 Atrium

Chakala, Andheri East

Mumbai 400 059

India

Destination India: an attractive opportunity for foreign banks

This report has been prepared by Value Partners India and gives a brief overview of the Indian market. The report also focuses on key opportunities for smaller foreign banks and new banks seeking entry into India.

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Table of Contents

Destination India: an attractive opportunity for foreign banksSeptember 2011

1 Executive summary 5

2 What makes the Indian market so attractive? 6

3 How is the financial services sector structured in India? 9

4 What are the key regulations governing the presence of foreign banks in India? 11

5 How have smaller foreign banks performed in India? 18

6 What are the immediate opportunities for smaller and new foreign banks? 22

7 Is there any potential in retail banking for smaller foreign banks? 29

8 Conclusions 32

4

Foreign banks in India

1 Executive summaryThe Indian economy is largely driven by private consumption and the services sector, which highlights the potential of the domestic market and indicates the economy’s resilience to global crises. The current low penetration levels of key financial products and services and limited banking reach suggest that there may be significant growth opportunities in both retail and corporate banking.

The Foreign Direct Investment (FDI) in Indian banks offers limited options for the expansion of foreign banks in India as the Reserve Bank of India (RBI) favours consolidation within Indian banks rather than acquisition by foreign institutions. In addition to FDI restrictions foreign banks in India are currently gov-erned by strict regulations in relation to capital augmentation, funding options and the expansion of branch networks.

Given the regulatory constraints, foreign financial institutions have adopted different types of market entry strategies, which mainly leverage on banks and on non-banking financial companies (NBFCs). In addition to their traditional branches, foreign banks have a NBFC presence in India in order to overcome branch-opening limitations and to augment their network in semi-urban and rural areas. In the future the use of a wholly-owned subsidiary (WOS) may enable foreign banks to overcome some of the existing restrictions on branch expansion and on obtaining more efficient sources of funds. A conclusive analysis will however only be possible following the publication by RBI of its new regulations on the presence of foreign banks in India.

The product portfolio of the smaller foreign banks in India will be largely constrained by the limited branch network policy which restricts these banks from aggressively offering retail banking services. These banks should focus, therefore, on providing corporate banking services, in particular trade finance and corporate lending, where they could actively target the companies from their native countries with a presence in India, as well as SMEs in large, export-oriented clusters. Corporate banking could be further enhanced through the provision of services such as treasury, cash management, corporate finance advi-sory, loan syndication and project finance services.

There are some niche opportunities like NRI (non-resident Indian) services and retail finance for smaller banks in the retail segment. These banks will however need to heavily leverage partnerships with local banks and other companies with strong distribution networks in order to effectively target retail customers.

Real GDP growth trend in India

861

944 992

1,082

1,181

9.4% 9.6%

5.1%

9.1% 9.1%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

0

200

400

600

800

1.000

1.200

1.400

2007 2008 2009 2010 2011F

FY, US$ bn, percentage GDP

GDP growth

Real GDP by expenditure

58.3%

11.9%

34.6% -4.8% 100%

FY 2010

Pvt. consumption

Govt. exp. Investments Net exports Total

Real GDP by sector

14.6%

28.1% 57.3%

FY 2010 Agriculture

Industry

Services

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5


861

944 992

1,082

1,181

9.4% 9.6%

5.1%

9.1% 9.1%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

0

200

400

600

800

1.000

1.200

1.400

2007 2008 2009 2010 2011F


GDP growth


58.3%

11.9%

34.6% -4.8% 100%

FY 2010

Pvt. consumption


Real GDP by sector

14.6%

28.1% 57.3%

FY 2010 Agriculture

Industry

Services

2 What makes the Indian market so attractive?India is the world’s second largest country in terms of population – with 1.18 billion people1, and one of the fastest growing economies in the world. India’s real gross domestic product (GDP) is estimated at US$ 1,082 billion and is forecast to grow at 8.8% in the medium term2, which is in line with the robust growth witnessed in recent years. The Indian economy is largely driven by private consumption and the services sector, which highlights the potential of the domestic market and exhibits the economy’s greater resilience to global crises. The structure of the Indian economy is in sharp contrast to that of the Chinese economy, which is largely dependent on investments and global trade.

1 Source: Economist Intelligence Unit (EIU) estimates for 20102 Source: EIU growth estimates for 2010-15; exchange rate used 1 US$ = INR 45

6


The strong private consumption trend in India is largely led by a favourable demographic profile, with 65% of India’s population below 35 years of age, and a strong urbanisation trend, resulting in a large and growing urban middle and higher income segment, which is increasingly spending more on lifestyle products and services. According to industry estimates3, more than 9% of Indian households will have an annual income of more than US$ 11,000 by 2020; this figure currently stands at closer to 3% of households.

The current low penetration levels of key financial products and services like consumer loans, mortgages, insurance, and financial cards suggest significant growth opportunities for retail financial services.

3 Source: NCAER, ICICIDirect.com research


861

944 992

1,082

1,181

9.4% 9.6%

5.1%

9.1% 9.1%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

0

200

400

600

800

1.000

1.200

1.400

2007 2008 2009 2010 2011F


GDP growth


58.3%

11.9%

34.6% -4.8% 100%

FY 2010

Pvt. consumption


Real GDP by sector

14.6%

28.1% 57.3%

FY 2010 Agriculture

Industry

Services

Source: EIU, Reserve Bank of India

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Source: Datamonitor, Euromonitor, IMF, OECD, World Bank, Swiss Re, RBI, ICRA, Central Banks’ websites, Value Partners analysis

As well as retail banking, India also offers tremendous potential in corporate banking. There are more than 26 million small and medium enterprises4 (SMEs) in India, which contribute approximately 45% to industrial output and 40% to total exports and 17% to the India’s GDP5. Traditionally, they have had limited access to bank credit, despite playing a vital role in the growth of Indian economy. Only 10.2% of banking credit and 16.6% of corporate credit is directed towards SMEs6. Many of these SMEs are export-oriented setups, requiring more sophisticated corporate banking products and services. Tapping this underserved SME sector could provide a major growth opportunity in corporate banking.

Given India’s potential, it has emerged as one of the focus markets for the many global financial institutions already present in India, like HSBC, Citibank and Standard Chartered. In addition, there are many others, like Goldman Sachs, Morgan Stanley and Doha Bank, who are keen to enter the Indian market and have applied for a branch banking licence in India.

4 As per Reserve Bank of India (RBI), small and medium enterprise is defined as an undertaking in which investment in plant & machinery does not exceed Rs. 10 crore (2.2 US$ mln)5 Source: Small & Medium Business Development Chamber of India6 Source: RBI statistics for FY2010

Product / channel Metric

Consumer loans

Mortgages

Insurance

Mutual funds

Financial cards

INDIA CHINA BRAZIL ITALY GERMANY

9.3%

17.0% 14.7%

6.0% 9.2%

7.0% 14.0%

4.0%

21.7%

47.6%

5.4% 3.3% 3.1%

7.8% 7.1%

7.2% 6.2%

46.9%

11.4% 10.1%

0.20

1.65

3.35

1.59 1.56

Balance outstanding as % of GDP (2009)

Balance outstanding as % of GDP (2009)

Premium as % of GDP (2009)

AUM as % of GDP (2010)

Cards per capita (2009)

“If you said, ‘Choose one country in the world that you could expand into’, that would be India. [If you said] ‘You can have one pick and you can do whatever you like’, it would be India. We have not had the opportunities to make major investments in India. We are hungry.”

Douglas Flint, Chairman, HSBCSource: Interview with Economic Times, 3rd March 2011

Penetration of retail financial services in India

8


3 How is the financial services sector structured in India?

The Indian financial system can be broadly divided into three main categories: banks, non-banking financial companies (NBFCs) and other financial institutions (including insurance companies, mutual funds, stock market and micro-finance companies).

The Indian banking system is quite articulated and comprises 83 commercial banks, offering a wide range of products and services across the country. In addition to commercial banks, India has more than 98,507 development banks focused on agricultural credit, deposits and personal loans. Despite an extensive network of around 97,446 bank branches, India has a limited banking reach. There are approximately 69 bank branches per million population, which is much lower than developed economies (564 and 455 branches per million population in Italy and Germany, respectively) as well as other developing countries like Brazil (116 branches per million population)7.

The banking sector is dominated by public sector banks; however, the market is becoming more competitive, with an increasing presence of new private sector and foreign banks. The total assets of the banking sector were US$ 1,532 billion as of 31st March 2010 and have shown a steady growth of 17.2% between FY2008-10. The contribution of foreign banks to total assets has declined from 7.4% to 6.3% in this period. This is in contrast to a growth in assets of public sector banks, which have increased from US$ 672 billion in FY2008 to US$ 987 billion in FY2010.

7 Source: World Bank

Bank type Description#

Entities BranchesAssets

(US$ bn )Business

scopeGeographical

scope

Public sector banks

• State Bank of India • Other nationalised

banks (in 1969) 27

58,825 987 • All products • National

Private sector banks

• Old private sector banks (not nationalised)

15 4,952

60 • All products • National

• New private sectorbanks (licencegranted after 1993)

7 5,075 196 • All products • National

Foreign banks

• Foreign banks present

through branches(or subsidiary) in India

34

308

96 • All products • National

Developmentbanks

• Regional rural banks • Urban co-operative

banks • Rural co-operative

credit institutions

98,507 28,286 193• Agricultural

credit • Deposits• Personal

loans

• Limitedto certain areas

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Source: RBI statistics, Value Partners analysis

The banking sector in India is complemented by non-banking financial companies (NBFCs), which are regarded as one of the major institutional source of financial services. There are more than 12,500 NBFCs in India, which are categorised into three types:

· Deposit-taking NBFCs: an NBFC that can accept term deposits between 1 and 5 years duration

· Non-deposit taking NBFCs: an NBFC that is not entitled to accept public deposits

· Residuary NBFCs: an NBFC that can accept term deposits between 1 and 5 years duration. They are required to maintain investments and liquid assets as per RBI directions

NBFCs were originally set-up to provide consumer financing or micro financing in rural areas; however, today they can provide various types of financial services (e.g. consumer loans, factoring, mutual funds and insurances distribution, and co-branded credit cards). They are also commonly used by banks and other companies to enhance offering and geographical reach.

Typical NBFC product portfolio and select examples of NBFCs

672

837

987

166

177

196

81

2008 2009 2010

1,115

1,342

1,532 CAGR 2008-10

Public sector banks

Old private sector banks

New private sector banks

Foreign banks

Total

Development banks

153

43

177

99

52

60

96

193

FY, assets, US$ bn 17.2%

12.3%

8.9%

8.7%

18.1%

21.2%

Citibank (Banking)

• Complement offer portfolio and rural coverage

Bajaj (Automotive)

• Offer auto loans to customers buying vehicles from Bajaj

Loans • Personal loans • Home loans/mortgages • Auto loans • Education loans

Investments • Asset gathering (e.g. mutual funds, securities) • Portfolio management • Insurance • Advisory services

Asset finance • Financing of physical assets (e.g. equipment leasing and commercial vehicle financing)

Pantaloon (Retail)

• Offer consumer finance products leveraging on existing retail capillarity

Products & services Player examples and rationale

Source: RBI, company websites, press reports

Evolution of assets of banks in India

10


4 What are the key regulations governing the presence of foreign banks in India?

In 2005, RBI released the Road Map for Presence of Foreign Banks in India, laying out a two-track and gradualist approach aimed at increasing the efficiency and stability of the banking sector in India. First track was the consolidation of the domestic banking system, in both the private and public sectors, and the second track was the gradual enhancement of foreign banks in a synchronised manner. Based on this approach and implementation of the first track, the foreign direct investment (FDI) in Indian banks offers limited options for the expansion of foreign banks in the country. RBI favours consolidation within Indian banks, rather than acquisition by a foreign bank.

Source: RBI, Value Partners analysis

In addition to FDI restrictions, foreign banks in India are currently governed by strict regulations, especially in terms of capital augmentation, funding options and expansion of branch network. Some of these important regulations governing the presence of foreign banks in India have been discussed below.

FDI and portfolio investment in public sector banks are subject to overall statutory limits of 20% and subject to RBI approval

FDI not allowedLimited FDINo FDI limit

Public sector banks •

Private sector banks • Aggregate foreign investment (FDI + FII + ADR + GDR) up to a maximum of 74% in a single private bank

• FDI up to 49% under the automatic route and FDI up to 74% needs government approval

• 5% portfolio investment limit for a single NRI and 10% for individual FIIin a single private sector bank

- Any acquisition in excess of 5% of paid-up capital by a single entityneeds RBI approval

- Though there is a 10% cap on voting rights, RBI is authorising voting rights only up to 5%

Development banks • FDI not allowed

FDI regulations for investment in Indian banks

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Capital

Foreign banks can operate in India as branches of the parent bank or as a wholly-owned subsidiary (WOS). The minimum capital requirement for a WOS mode of presence is US$ 70 million (US$ 25 million – to be brought upfront – for branch banking mode). Foreign banks are governed by strict regulations in terms of capital requirements and funding options. Foreign banks are not allowed to raise capital in India and have to primarily rely on Head Office (HO) funding for capital requirements. HO funding is augmented by local market borrowings and deposits as sources for lending to bank customers. The capital for foreign banks in India is categorised under two headings: Tier-I and Tier-II capital.

Source: RBI, Value Partners analysis

Capital augmentation limits for foreign banks in India

Capital head Description Limit

Tier-I capital

Interest-free funds from HO

Paid-up capital that the bank needs to bring in from the HO Minimum US$ 25 million for branch banking mode and US$ 70 million for WOS mode

Innovative instruments

Foreign currency HO borrowings in the form of Innovative Perpetual Debt Instruments (IPDI)

Maximum 15% of total Tier-I capital

Statutory reserves in Indian books

Cash reserve ratio (CRR) and statutory liquidity ratio (SLR) Minimum CRR of 6% and SLR of 24%

Remittable surplus Remittable surplus retained in Indian books which is not repatriable so long as the bank functions in India

No limit

Tier-II capitalMaximum 100% of total Tier-I capital

Undisclosed reserves Included in capital, if they represent accumulations of post-tax profits and are not encumbered by any known liability. Should not be routinely used for absorbing normal loss or operating losses

No sub-limit

Revaluation reserves These reserves are included in Tier-II capital at a discount of 55%

No sub-limit

General provisions and loss reserves

Included in Tier-II capital if they are not attributable to the actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses

No sub-limit

Hybrid debt capital instruments

Includes foreign currency HO borrowings in the form of instruments which have close similarities to equity and can support losses on an ongoing basis without triggering liquidation

Maximum 25% of Tier-I capital

Subordinated debt HO borrowings in foreign currency Maximum 50% of Tier-I capital

Investment reserve account

Includes provisions created on account of depreciation in the Available for Sale or Held for Trading categories in excess of the required amount in any year

No sub-limit

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Borrowings

In addition to Tier-I and Tier-II capital, foreign banks can use borrowings from the local market as an important instrument in funding the lending business. There are two main sources of borrowing for foreign banks, as detailed below:

· Loans from call money market: on a fortnightly average basis, outstanding loans should not exceed 100% of capital funds (i.e., sum of Tier-I and Tier-II capital). However, banks are allowed to borrow a maximum of 125% of their capital funds on any day over the course of a two-week period

· Loans from other banks (inter-bank term deposits): inter-bank liabilities should be a maximum 300% of net worth for a branch, with a capital adequacy ratio (CRAR) of more than 125% of minimum CRAR, or a maximum 200% of net worth8

Capital adequacy ratio (CRAR)

Capital adequacy ratio of 9% is to be maintained on an ongoing basis.

Statutory Liquidity Ratio (SLR)

SLR refers to cash or gold or investments in unencumbered approved securities and is computed as a percentage of a bank’s total demand and time liabilities in India. SLR is fixed by RBI, and is currently set at 24%.

Cash Reserve Ratio (CRR)

CRR refers to liquid cash that banks have to maintain with the RBI as a certain percentage of their demand and time liabilities. Currently, CRR is fixed at 6%.

Priority Sector Lending (PSL)

At present, 32% of a foreign bank branch’s adjusted net bank credit needs to be given to priority sectors. Out of this, 12% lending needs to be directed towards the export sector and 10% towards SMEs. Foreign banks often use investments in the National Bank for Agriculture and Rural Development (NABARD) bonds to bridge the gap between actual and target priority sector lending.

Branch expansion

As per the World Trade Organisation (WTO) norms, RBI should allow at least 12 new foreign bank branch licences per year. Currently, RBI is doing better than this, granting up to 20-25 licence approvals per year. Besides that, RBI favours the applications of foreign banks expanding their network in the under-banked areas.

The road map defined by RBI in 2005 was divided into two phases, with the first phase spanning the period March 2005-March 2009, and the second phase beginning after a review of the experience gained in the first phase. RBI delayed the initiation of the second phase because of global financial turmoil. Consequently, in January 2011, RBI issued a discussion paper on “The Presence of Foreign Banks in India” to initiate the process of defining fresh regulations for foreign banks. Based on the comments received from various stakeholders, RBI is expected to finalise the regulations in the next 3-6 months. Some of the other key elements of RBI’s discussion paper are discussed below:

Wholly-Owned Subsidiary (WOS) versus branch mode of presence

In light of its multiple objectives, including financial stability, meeting the WTO commitments, financial inclusion, control over expansion of foreign banks, and appropriate supervision, RBI has indicated that the WOS mode of presence should be the preferred one for foreign banks in India.

8 Net worth includes paid-up capital plus free reserves, including share premium but excluding revaluation reserves, plus investment fluctuation reserve and credit balance in a profit & loss account, less debit balance in profit & loss account, accumulated losses and intangible assets

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New foreign banks seeking entry into India can apply for a branch banking or WOS mode of presence; however, the following category of banks would be allowed to enter India only by setting up a WOS:

· Banks incorporated in a jurisdiction that gives preferential claim to local creditors in a default situation

· Banks that do not provide adequate disclosure in the home jurisdiction

· Banks with complex structures

· Banks which are not widely held

· If the RBI is not satisfied with the supervisory arrangements (including disclosure arrangements) and market discipline in the country of their incorporation

In addition, it would be mandatory for foreign banks that opt for branch banking mode to convert into a WOS in case any of the parameters mentioned above are triggered or the bank’s presence in India becomes systematically important9.

Capital requirements

The capital requirements for branch banking will continue to be US$ 25 million and in the case of WOS, the capital requirements will be in line with those prescribed for new private sector banks (not finalised yet; the proposed range is between US$ 70 million and US$ 230 million).

Corporate governance

To ensure that the board of directors of the WOS act in the interest of the WOS, RBI may mandate that:

· At least 50% of the directors should be Indian nationals resident in India

· At least 50% of the directors should be non-executive directors

· A minimum of one-third of the directors should be totally independent of the management of the subsidiary in India, its parent or associates

· The directors shall conform to the ‘fit and proper’ criteria laid down by RBI

Priority Sector Lending (PSL)

The new entrants would have the PSL requirements similar to Indian private sector banks (40% of total adjusted net bank credit), including the sub-target for agricultural advances (10% of total adjusted net

bank credit). These requirements need to be fulfilled within 5 years of converting into a WOS.Declaration of dividends

WOS can declare dividends subject to multiple conditions, including:

· Capital to Risk (Weighted) Assets Ratio (CRAR) of at least 9% for preceding two completed years and the accounting year for which it proposes to declare dividend

· Net Non-Performing Assets (NPA) should be less than 7%

In case any bank does not meet the above CRAR norm, but has a CRAR of at least 9% for the accounting year for which it proposes to declare dividend, it would be eligible to declare dividend if its net NPA ratio was less than 5%.

9 A foreign bank will become systematically important if its assets on their balance sheet and credit equivalent of off-balance sheet items become 0.25% of the total assets of all scheduled commercial banks in India

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WOS of foreign banks will not be given full national treatment (at par with domestic banks in India), despite their local incorporation. However, RBI has proposed certain initiatives to entice the foreign banks to adopt a WOS mode of presence which will place a foreign bank’s WOS in a much better position than the foreign bank branches operating in India (although less than that of domestic banks). These initiatives are especially designed keeping in mind that none of the foreign banks present in India today have adopted a WOS mode of presence. The proposed incentives are detailed below.

Branch expansion

The WOS would be enabled to open branches in Tier 3 to 6 centres, except at a few locations considered sensitive for security reasons. Their application for setting up branches in Tier 1 and Tier 2 centres would also be dealt with in a manner and on criteria similar to those applied to domestic banks. Further, for foreign banks with a branch-banking mode of presence, RBI will grant permission to open only 12 branches per year across all foreign banks (in line with WTO commitments). In recent years, RBI has been allowing the opening of 20-25 branches of foreign banks in a year. For foreign banks, Tier 1 and Tier 2 cities provide maximum potential and RBI may allow a WOS of foreign bank to be at par with the domestic banks in terms of expanding their branch network in these cities (RBI discussion paper is not fully detailed on this aspect).

Raising of non-equity capital in India

RBI may allow WOS of foreign banks to raise rupee resources through the issue of non-equity capital instruments in the form of innovative perpetual debt Instruments (IPDI), Tier-I and Tier-II preference shares and subordinate debt as allowed to domestic private banks. If implemented, the proposed regulation will have a positive impact on the funding of foreign banks and will open more avenues for WOS of foreign banks to raise rupee resources through the issue of non-capital instruments.

Tax, ownership, voting rights

The conversion of existing branches to WOS might attract capital gains tax, which may deter several foreign banks from converting from branch to WOS mode. Moreover, RBI has indicated that WOS of foreign banks will be allowed to list and dilute their stake, so that at least 26% of the paid up capital is held by Indian residents upon completion of a minimum prescribed period of operation. There is no clarity on the voting right restrictions of foreign banks in WOS mode.

Even though RBI has given some incentives for adopting WOS, some banks have expressed concern about some of the proposed guidelines, especially those related to branch expansion, full national treatment, priority sector lending and tax liabilities on conversion from branch to a WOS.

A conclusive analysis on branch banking versus WOS mode of presence will be possible once the final regulations are framed by RBI.

As mentioned earlier in this document, foreign banks have also used NBFCs as a vehicle to complement their branch mode of presence in India. This is mainly driven by the fact that RBI has adopted a more liberal

“The bank is eager to expand its presence here [in India], but the capital-gains tax could be a show stopper for us. We won’t even look at doing this [converting to WOS mode] if we have to pay a capital-gains tax.”

Neeraj Swaroop, Regional CEO, Standard CharteredSource: Interview with Wall Street Journal, 27th May 2011

“The positives include a possible reduction in the tax we pay [after local incorporation], and an increase in branches, but the tax liabilities in the transitional phase are not clear.”

Stuart Davis, CEO, HSBC IndiaSource: Interview with Mint, 7th March 2011

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approach towards regulating the NBFCs in India, especially in terms of FDI limits, capital requirements and branch expansion.

Given the prevalent regulatory scenario, foreign financial institutions have adopted different types of market entry strategies, which mainly leverage banks and NBFCs. In addition to branch banking, foreign banks such as Citibank, HSBC, Standard Chartered and Deutsche Bank have an NBFC presence in India to overcome branch-opening limitations and augment their network into semi-urban and rural areas. Even non-banking players such as GE Money have set up NBFCs to offer targeted financial services. Some foreign banks have also acquired minority stakes in private banks to access preferred product distribution through domestic banks.

Regulation head NBFCs Foreign banks

FDI norms · No FDI restrictions for 19 activities10 · FDI up to 74% in a single bank with 10% voting rights in private banks, de facto capped at 5% by the regulator

Capital requirements · FDI up to 51%: US$ 0.5 million· FDI between 51% & 75%: US$ 5 million · FDI more than 75%: US$ 50 million

· US$ 25 million for branch mode· US$ 70 million for WOS mode

Capital adequacy ratio · Deposit taking NBFC: 12%11

· Non-deposit taking NBFC: 15%· Minimum 9%

Statutory reserves · Deposit taking NBFC: 15% of deposits to be invested in RBI approved securities

· Non-deposit taking: No requirement

· CRR and SLR requirements of 6% and 24% of total demand and time liabilities, respectively

Priority Sector Lending (PSL) · None · 32% of total lending should be to priority sectors

Deposits and interest rates · Maximum rate of 12.5% on deposits (applicable from April 2007)

· No deposit insurance by DICGC12

· Minimum savings rate of 4%· DICGC deposit insurance facility

available up to a specified limit

Branch expansion · No restrictions on branch expansion· Deposit gathering NBFCs need to

inform RBI and wait for 30 days before setting up a new branch

· Prior RBI approval is required · RBI usually grants 20-25 approvals per

year across all foreign banks· Public interest dimensions (under-banked

areas, credit flows to priority sectors, technology) are applied while granting

Source: RBI, Department of Industrial Policy and Promotion, Value Partners analysis

10 NBFCs are authorised to provide major types of financial activities, except issuing credit card (NBFCs cannot take the risk, but co-branding with a bank is permitted), taking sight deposit, asset reconstruction and insurance (insurance distribution is permitted)11 To be raised to 15% wef 1st April 201212 The Deposit Insurance and Credit Guarantee Corporation

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RBI has been deliberating on tighter regulations for NBFCs, as well as regulating the relationships between banks and NBFCs. RBI has stated that it does not view favourably the setting up of subsidiaries or significant investment in associates for activities that can be undertaken within the bank.

Bank India entry Banking presence NBFC presence

· 43 bank branches· Previously held 13% stake in HDFC Bank (diluted in 2010)· Also held stake in Axis Bank

1902

1850

1858

1994

· Wholly owned NBFCs: CitiFinancial (consumer financing) Citicorp Finance (commercial vehicle and SME financing)· Majority stake NBFCs: 74% stake in Citicorp Maruti (JV) for auto loans

· HSBC Asset Management (wholly owned) focused on mutual funds and portfolio management services

· SC Investments and Loans (wholly owned) focused on corporate loans· Standard Chartered Finance (wholly owned) focused on wealth management services

· Deutsche Investments India (wholly owned) focused on mutual funds, insurance and loans

· 50 bank branches · 4.78% stake in Axis Bank· 4.84% stake in Yes Bank

· 15 bank branches · 1.35% stake in Yes Bank· 2.41% stake in Axis Bank

· 94 bank branches

Example of diversified presence of foreign financial institutions in India

Source: RBI, company websites, analyst reports, press reports, Value Partners analysis

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5 How have smaller foreign banks performed in India?

Given the market potential, foreign banks have been very aggressive in India in recent years and as a result, India has emerged as a strong contributor to the overall growth of some of the large foreign banks like Citibank, HSBC and Standard Chartered. This fact is also reflected in the strong growth in assets of foreign banks in recent years. However, return on assets (RoA) dropped significantly in 2010.

The rest of this section focuses on the performance of the smaller foreign banks in India,13 since the profile and performance of these banks is significantly different from that of the larger foreign banks.

Large foreign banks

(5 banks with assets of > US$ 5 bn)

65.5

78.3

72.8

2008 2009 2010

5%

Small foreign banks (19 banks with assets of < US$ 1 bn)

1.9

2.5

3.0

2008 2009

25%

Mid-size foreign banks (8 banks with assets of US$ 1-5 bn)

12.5

18.1

20.5

2008 2009 2010 2010

28%

2.3%2.1%0.0%0.7% 2.1%1.2%1.8%2.0% 0.7%

FY, assets in billions of US$, percentage X% CAGR 2008-10 X% RoA

Growth in assets of foreign banks in India

13 Foreign banks with assets of less than US$ 1 bn; five banks have been chosen as representative banks for this group viz. Abu Dhabi Commercial Bank, FirstRand Bank, Mizuho Corporate Bank, Shinhan Bank and State Bank of Mauritius


18


Sources of funds

Smaller foreign banks have mainly relied on their capital, HO borrowings, call money market and loans from other banks as their primary source of funds. In addition, some of the banks have been able to raise substantial term deposits from their corporate clients. However, these smaller banks with limited branch network are unable to raise current accounts and savings accounts (CASA) funds from retail customers.

New foreign banks rely heavily on their capital and loans from other banks and institutions as the main source of funds in the initial phase of their setup. For example, for FirstRand Bank, which started its operations in India in 2009, capital contributes 55% to total sources of funds, complemented by loans, which contribute 43%. More than 80% of these loans are from outside India or from other institutions and agencies.

20%

36%

27% 27%

30%

15% 35%

5%

49% 41%

33%

52%

Abu Dhabi Commercial

Bank

FirstRand Bank Mizuho Corporate Bank

Shinhan Bank State Bankof Mauritius

145 472 228 135

Term deposit

s

Borrowin

gs*

Demand

& savin

gs deposit

s

Capital, r

eserv

es

& surp

lus

55%

0%

2%

56

0%

43%

8% 6%

16%

100% =

US$ mln

Sources of funds for select foreign banks

* Includes loans from RBI, other banks, other institutions and agencies and loans from outside IndiaSource: RBI statistics, Value Partners analysis

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Application of funds

Given the prevalent regulatory norms, banks have to maintain a significant amount of their assets with RBI in the form of CRR (cash reserve ratio) and SLR (statutory liquidity ratio) balances. In addition to these balances, most of the smaller foreign banks have been using their funds for lending, mainly to their corporate customers in the form of term loans, cash credits, overdrafts and bills purchasing and discounting.

* Includes cash balances, investments (other than in government securities), fixed assets and othersSource: RBI statistics, Value Partners analysis

7%13%

20%

31%12%

15%

27%

78%

19%

18%

23%

7%

50%

45%


Bank

FirstRand Bank Mizuho Corporate Bank


145 100% =

US$ mln

56 472 228

Other a

ssets*

Advances

Investm

ents

in G

overnm

ent

Money at c

all

and short

notice

Balances w

ith RBI

and other b

anks

1%

13% 11% 6% 2%

6%

0%

18%

66%

135

10%

3%

secu

rities

Application of funds for select foreign banks

20


Profitability

The foreign banks have seen a significant drop in interest margins in FY 2009-10, mostly on account of a steeper decline in return on advances.


Despite this pressure on interest margins, most of the smaller foreign banks have remained profitable in FY2010. However, a few banks, like FirstRand Bank, which had recently established their presence in India, suffered significant losses in this period14.

4.2%

3.9%

0.5%

4.9%

3.7%

4.2%

2.9%

8.4% 8.0%

11.7%

8.5%

3.6%

10.8%

7.2%

11.2%

9.5%

11.2%

8.8%

FY09 FY10 FY09 FY10 FY09 FY10 FY09 FY10 FY09 FY10

Cost of funds

Return on advances


Bank

FirstRand Bank

Mizuho Corporate

Bank

Shinhan Bank

State Bank of Mauritius

Interest margins for select foreign banks

5.4 3.7

18.9

13.3

2.8 2.5

-8.3

8.7 10.3

1.2

Net income*

Operating profit

Operating profit/net income

FY2010, US$ mln

FirstRandBank


Bank

Mizuho Corporate Bank


X%

-224% 46% 78% 43% 46%

Profitability of select foreign banks

14 In the case of FirstRand Bank, the losses were mainly due to very high payments to and provisions for employees, which were considerably above the industry average.

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6 What are the immediate opportunities for smaller and new foreign banks?

The product portfolio of the smaller foreign banks in India is largely constrained by the limited branch network, which restricts these banks from aggressively offering retail banking services. These banks have mainly concentrated on corporate services, with a special focus on trade finance, corporate lending and treasury services. For example, FirstRand Bank is the only African bank in India and targets South African companies setting up a base in India, as well as Indian companies exporting goods and services to South Africa (refer to FirstRand Bank case study).

Case study

FirstRand Bank is mainly focusing on trade finance products, leveraging trade flows between India and sub-Saharan Africa, particularly South Africa

Source: RBI, company website, press reports, Value Partners analysis

• Established in 2009, FirstRand Bank is the only African bank in India and has a single branch in Mumbai

• Target customers include South African companies setting up a base in India, as well as Indian companies exporting goods and services to South Africa

• Also sought RBI permission to open branches in Gurgaon, Chennai, Hyderabad, Bangalore and Coimbatore

Overview

Key activity areas

• INR & foreign currency accounts, fixed deposits, transactional banking, working capital facilities, long term loans and trade finance

Corporate banking

• Retail banking products not offered yet • The bank will introduce retail banking

services after expanding its branch network

Retail banking

• Fixed income, money market, forex customer dealing, FX structuring, FX spots & forwards and derivatives

Fixed income currency & commodities

• Corporate finance & advisory, asset-based finance, infrastructure finance and capital raising (debt)

Investment banking

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22


Trade finance

India’s trade has been booming, despite the global financial crisis and recession. In FY2009-10, India’s total trade stood at US$ 467 billion, with imports contributing around 62% to total trade. With increasing trade and a greater number of Indian companies reaching out to global markets, trade finance has emerged as one of the key focus areas for the banks, especially the foreign banks, given their understanding of global markets. However, an analysis of India’s trade flows indicates that among India’s major trade partners, few countries’ native banks don’t have any branch presence in India. For example, there are no Chinese banks in India, despite China having the highest trade with India among all nations15. This is also the case with Italy, Malaysia, Saudi Arabia, The Netherlands, Brazil, Russia and Israel, who all have significant trade with India. Banks from these countries can leverage the trade flows and capture a share of the resulting trade finance potential.

* Trade figures excluding mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxesSource: Indian Ministry of Commerce & Industry, Value Partners analysis

Countries with significant trade with India, but no native bank having presence in India*

Brazil (US$3.9 bn)

China (US$42 bn)

Russia (US$3.7 bn)

Malaysia (US$6 bn)

Saudi Arabia (US$4.6 bn)

Israel (US$3.2 bn)

Italy (US$7.2 bn)

Netherlands (US$4.4 bn)

15 Trade figures excluding mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes

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Even for countries with native banks present in India, there is a potential for the entry of newer banks, as represented by the high value of trade per branch of banks from those countries. For example, India’s trade with Switzerland was US$ 15.2 billion in FY2009-10, while there is only one bank from Switzerland in India – UBS Bank, with a single branch in Mumbai. However, given the level of trade between India and Switzerland, there is the potential for other Swiss banks to capture a share of trade finance business emanating from the activities between these two countries. Similar analysis for other countries shows that there is significant scope for newer banks or additional branches for foreign banks from Belgium, Australia, Indonesia and UAE.

* Trade figures excluding mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxesSource: Indian Ministry of Commerce & Industry, Value Partners analysis

It should be noted that limited branch presence might restrict the smaller foreign banks to tap full trade finance potential in regions where they don’t have presence.

0.07

0.40

0.70

0.88

1.21

1.80

4.50

4.68

5.76

8.14

8.29

9.37

9.45

15.26

FY2009-10, of US$ bn of trade per branch

UAE

Indonesia

Australia

Belgium

Switzerland

Japan

Germany

Thailand

South Korea

South Africa

UK

France

USA

Singapore

Countries with significant scope for newer banks or additional branches for foreign banks

Country’s trade with India per Indian branch of banks from that country lions of US$*

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Corporate lending

Foreign banks will need a strong corporate lending proposition to complement their cross-border presence and trade finance offer. The financial services sector in India is relationship-driven, and clients are unlikely to switch to a new foreign bank solely for trade finance, unless it is complemented by an attractive lending product offer, including term loans, cash credits, overdrafts and bills purchasing and discounting.

Large corporate clients in India are likely to bank with domestic Indian banks because of a stronger balance sheet, enabling them to offer higher credit lines and a wider branch network. Smaller foreign banks, in turn, need to focus on two key customer segments, namely the subsidiaries or branch offices of companies from their native countries and local SMEs, especially those focused on export business

Subsidiaries of companies from native country

India has emerged as a preferred investment destination, and many global companies have established a direct presence in India through a wholly-owned subsidiary (WOS), a joint venture (JV) with Indian companies, representative offices, technical collaborations, franchisee arrangements and liaisons. These companies could be an attractive target segment for the foreign banks, whereby the banks could leverage their relationships with these companies in their native countries. For example, there are more than 200 Italian companies in India, with almost 70% of the companies having a WOS or a JV with Indian companies .

Although these companies are spread across the country, there are some locations with a greater concentration (refer to the case study on the presence of Italian companies in India).

“We already have unused credit lines from about 10 Indian banks; why would we switch to a new smaller bank, even if it’s from our home country?”

Representative of a large Indian subsidiary of a German company

“Italian companies in India are not welcome in Indian banks. Indian banks view the Italian companies with a lot of suspicion for providing them with credit. An Italian bank branch in India will have a better understanding of the financial viability of the Italian company, as it can access data from the parent company and is better positioned to serve these customers when compared to their Indian counterparts.”

Representative of a European banking group in India

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Case study

There are more than 200 Italian companies with a presence in India. Almost 150 of these companies have a wholly-owned subsidiary (WOS) or a joint venture (JV) with Indian companies; these companies have a cross-sector presence and could be potential targets for Italian banks setting up operations in India.

Export-oriented SMEs

In addition to the foreign companies present in India, foreign banks could also consider focusing on the export-oriented SMEs. This segment could be an attractive target for the foreign banks, since it would complement their trade finance offer as well as contribute towards meeting the priority sector lending targets. It is estimated that there are 400 modern SMEs and 2,000 rural and artisan-based clusters in India, which contribute up to 60% of India’s manufactured exports. Some of these clusters account for 90% of India’s total production output in selected products. For example, the knitwear cluster of Ludhiana or the gems and jewellery clusters of Surat and Mumbai contribute to almost the entire export of those products from India. Similarly, the clusters of Chennai, Agra and Kolkata are well known for leather and leather products.

Italian companies in India

99

46

66

211

Subsidiary

JV

Other*

Total

Main locations and business sectors of Italian companies in India

NCR**

Pune

Kolkata

Hyderabad

Mumbai

Bangalore

Coimbatore

• Machinery & parts (general)

• Services • Textiles • Chemicals • Electrical & electronics

Food products•

• Shoes & other leather products

• Textiles

• Machinery & parts (general) • Textiles • Material handling equipment • Automotive & ancillaries • Electrical & electronics • Chemicals

• Automotive & ancillaries • Instruments & appliances • Machinery & parts (general)

• Electrical & electronics

• Textiles • Chemicals • Material handling

equipment

• Services • Electrical & electronics • Iron & steel • Plastics

• Textiles • Iron & steel

Chennai

* Others include representative offices, technical collaborations, franchisee arrangements and liaisons** National Capital Region – includes New Delhi, Gurgaon, Faridabad, Noida and Ghaziabad Source: The Indo-Italian Chamber of Commerce & Industry, Istituto Nazionale per il Commercio Estero, Cygnus research, Value Partners analysis

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16 Source: Coface, Factor Chain International

There are 18 large SME clusters with annual turnover of more than US$ 250 million and with high export potential. Though most of these clusters have small sized enterprises, the clusters provide an advantage of higher catchment through a single branch. These SMEs are increasingly looking at more customised and sophisticated offering; however, they have been poorly served by the Indian and foreign banks so far.

Factoring

Smaller foreign banks can further strengthen their SME offer through factoring, which is highly under penetrated in India and represents only 2.2% of the overall factoring market in Asia. In 2009, India’s total factoring volume as percentage of GDP was 0.32%, which is relatively low even when compared with other emerging economies like Brazil (2.3%) and China (2.3%). In 2010, the total factoring volume in India stood at US$ 3.7 billion, out of which domestic and international factoring accounted for 94% and 6% respectively16.

A major growth driver is the increasing acceptance of factoring by SMEs in India, especially in sectors like chemicals, automotive, engineering and textiles. SMEs traditionally have received limited bank credit and factoring represents a cheaper alternative to the high cost of working capital loans that banks offer to this segment. Therefore, in a growing economy like India, factoring has a market that offers much scope for rapid expansion. Moreover, there is an increasing demand for efficient receivables management and the professional approach of factors in credit assessment, debt collection, and sales ledger management has helped to develop a healthy payment culture in the manufacturing segment. The availability of improved credit information on SMEs will also drive the growth in factoring services.

Delhi (auto components, readymade garments)

Ahmedabad (pharmaceuticals)

Bangalore (electronic goods)

Chennai (leather products)

Ludhiana (hosiery,

bicycle parts)

Kanpur (leather products)

Gurgaon (electronic goods)

Moradabad (brassware)

Mumbai (electronic goods,

readymade garments)

Thane- Belapur (pharmaceuticals-

bulk drugs)

Tirupur (hosiery)

Pune (auto components)

Nagpur (readymade garments)

Salem (readymade garments)

Major export-oriented clusters in India

Source: Ministry of Micro, Small & Medium Enterprises, Value Partners analysis

In terms of international trade, a shift towards open accounts terms is likely to provide significant opportunities for international factoring. Open accounts trade is estimated to account for 80% of the cross-border trade.

The factoring market in India is dominated by SBI Global Factors, which has a sizeable 86% market share. Larger foreign banks like HSBC Bank and Standard Chartered Bank have been offering factoring services. Most recently, Singapore’s DBS Bank has also set up a factoring office in India as part of its plan to expand its global transaction services business regionally.

To grasp the full potential of the opportunity offered by factoring, smaller foreign banks could enter into a partnership with:

· A local bank currently not offering factoring services in order to leverage its branch network and its customer base;

· A non-banking company bringing a foreign bank’s product structuring expertise and potential for international factoring and leveraging a partner company’s network and knowledge of the Indian market

Other corporate banking services

In addition to trade finance and corporate lending as the core services, foreign banks can further strengthen their portfolio through other products and services such as:

· Treasury

· Cash management services

· Corporate finance advisory

· Loan syndication

· Project finance

It should be noted that these corporate banking products have significant challenges, especially for smaller foreign banks. For example, for cash management services, smaller foreign banks will need to partner with local Indian banks to enhance geographic coverage. On project finance and syndicated loans, foreign banks with a smaller balance sheet size could require additional capital or funds given the large ticket size of such loans.

On corporate finance advisory, there has been a shift in the focus of investment banks from a pure advisory model to a combination of advisory service and funds, as underwriting capability is now emerging as critical for success. Clients are increasingly deciding mandates based on the lending capability of the banks and not just on advisory competence. Therefore, these services are unlikely to be the key drivers of growth for smaller foreign banks, but could complement the core offering of trade finance and corporate lending.

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28


7 Is there any potential in retail banking for smaller foreign banks?

With a limited branch presence, the smaller banks are at an inherently disadvantageous position in offering retail banking services.

However, there are some niche segments that can be exploited by the smaller foreign banks, mostly leveraging partnerships with Indian banks and other financial entities with a wider footprint.

NRI services

India has a large non-resident Indian (NRI) community across the globe, and provision of certain niche retail banking services to the NRI population residing abroad offers a lucrative opportunity to several small foreign banks. According to a World Bank report on migration estimates, there were around 11.3 million emigrants from India in 2010 (about 1% of the country’s total population), with the United Arab Emirates, the United States, Saudi Arabia, Bangladesh, Nepal, the United Kingdom, Canada, Oman, Kuwait and Sri Lanka being the preferred migration destinations

The need to remit money to India is a significant part of an NRI’s personal banking needs, and according to the World Bank migration report, the overall inward remittance flows to India increased from US$ 21 billion in 2003 to US$ 49.2 billion in 2009, showing a CAGR of 15.25% during this period. The above data indicates that there is a significant opportunity for the foreign banks to target the NRI population and grab a share of remittance inflows.

Gulf countries 22%

North America 21%

South America 6%

Europe 12%

Africa 15%

East Asia 19%

Others* 5%

Regional distribution of NRIs worldwide

“With limited branches, retail services are out of the question. A network of a minimum number of branches is needed to provide retail services. Private banking or wealth management services can be provided with branches in select cities throughout India.”

Representative of a foreign bank in India

* Excluding Nepal and MyanmarSource: Ministry of Overseas Indian Affairs, Value Partners analysis

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• Established in 2002, Abu Dhabi Commercial Bank (ADCB) has 2 Indian branches (in Mumbai and Bangalore)

• The bank has a wide portfolio of corporate banking products and services; recently, it also started servicing retail customers, especially non-resident Indians (NRIs) based in the Middle East

• The bank has around 14,000 clients in India

Overview

Key activity areas

• Focus areas in corporate banking include: - Working capital finance - Demand and term loans - Bill discounting and export/import finance - Project finance

• In 2006, ADCB was the sole financier of a US$ 55 million infrastructure project finance deal with L&T

Corporate banking and related

• Focus areas in retail banking include NRI banking, loans and depository services to its clients in UAE

• In 2007, partnered with Axis Bank to offer remittance services and home loans (in India) to its NRI clients in the UAE

• Alliance with Kotak Securities, enabling NRIs to invest in Indian capital markets

Retail banking

Source: RBI, company website, press reports, Value Partners analysis

In addition to remittance services, some of the other products that could be offered to NRIs include loan products such as home loans, personal loans to the families of NRIs and loans against deposits. However, the small foreign banks are faced with significant challenges in offering these services, as they will not be able to match the network of Indian banks and established remittance market players such as Western Union, owing to restrictions on the branch opening by the foreign banks in India.

A potential solution could be to venture into a tie-up with local private banks in order to expand the branch network and provide a superior retail product portfolio for the NRI customers. Foreign banks can also provide access to the capital markets and mutual funds in India through partnerships with fund managers and brokerage firms. Partnering with Indian banks can also help in instant remittance facilities throughout India using the branch network of the domestic bank. For example, Abu Dhabi Commercial Bank, which has only two branches in India, has a tie-up with Axis Bank not just to provide instant remittance facilities to India but also to provide home loans in India for NRIs in UAE (refer to the case study on Abu Dhabi Commercial Bank).

Case study

Abu Dhabi Commercial Bank offers a portfolio of corporate banking products alongside retail banking solutions focused on non-resident Indian (NRI) clients

30


- Co-branded credit cards - Consumer durable loans

Retailers

- Co-branded cards - Other retail banking services

Public transport operators

- Co-branded cards

On-line portals

- Mortgage loans

Real estate developers

- Home improvement loans - Consumer durable loans

Home improvement cos.

- Auto finance - Consumer durable loans

Automotive manufacturers/dealers

- Co-branded cards

Hotels/travel agencies

- Personal loans - Insurance - Savings accounts

Postal/Courier companies Financial

service providers

Retail finance

As with partnerships for NRI services, smaller foreign banks could also consider adopting a strategy focused on selective tie-ups to offer retail finance products such as education loans, mortgages, credit cards, consumer durable loans, and personal loans. Moreover, foreign banks could adopt innovative distribution channels that would provide the necessary reach and overcome the constraints of a limited branch network.

In addition, foreign banks could consider offering products catering to other specific financing needs of customers for which there are currently no product offerings – for example, partnering with:

· Matrimonial portals for marriage loans and other financing needed for starting a “new home”

· Home improvement companies (modular kitchen, interior designers) to offer loans in connection with redesign of homes particularly in upscale locations

Source: Value Partners analysis

Non-traditional distribution channels/tie-ups for consumer finance by typology

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17 Source: Economic Times article titled “PM to seek RBI’s views on Islamic banking” dated 28th October, 2010

Islamic banking

India has approximately 150 million Muslims, making it the third largest Muslim population in the world after Indonesia and Pakistan. This presents a huge opportunity for banks to offer Islamic banking services to a section of society that does not currently utilise any banking services.

While China (which has around 80 million Muslims) recently issued its first licence for Islamic banking, India has until recently not allowed domestic banks to offer these services, either domestically or abroad. These restrictions also apply to foreign banks with branches in India. However, based on the Indian Prime Minister’s request17, RBI may evaluate offering Islamic banking services in India. Moreover, a Kerala High Court in 2011 dismissed a writ petition against the government for the starting of an NBFC based on Shariah-complaint Islamic rules by the Kerala State Industrial Corporation (KSIDC). The bench observed that when KSIDC proposed to carry on NBFC business in accordance with Shariah law, in addition to complying with the laws of the country, it could not be treated as promoting a religion.

Although these services are not currently offered in India, the recent Kerala High Court ruling can be seen as a first step towards allowing these services in India. Foreign banks currently offering Islamic banking services in other countries will have an advantage over domestic banks in India due to the expertise they already have in the field, if and when Islamic banking is allowed in India.

8 Conclusions

Given the forecast growth rate of India’s GDP, the extent of private consumption and the under-penetration of its financial services, India remains an attractive investment destination for foreign banks. Although the regulatory environment in India is restrictive, there is significant scope for foreign banks to do business in India. They can remain profitable in the near future by serving some niche banking segments that are not served by Indian banks, which can then achieve significant growth in the long term by expanding their offerings, both in terms of products and geographical coverage and by venturing into partnerships with local players.

While entering the Indian market, foreign banks should decide on the choice of the clients they may wish to serve. This decision will not only drive the strategy that needs to be followed with respect to the amount of capital that banks need to bring in, but also in terms of its geographical presence and the products and services that the foreign bank will offer in India.

value partners report_destination india_an attractive opportunity for foreign banks

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