Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

India retail banking a 'nice oasis' for foreign lenders Deutsche, HSBC, peers

Stock MarketsMar 02, 2020 06:16PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

By Nupur Anand and Sumeet Chatterjee

MUMBAI/HONG KONG (Reuters) - Outsized returns in India, besting local lenders for the first time in a decade, are emboldening banks such as Citigroup (N:C), Deutsche Bank (DE:DBKGn) and HSBC (L:HSBA) to invest more in a market that has long held promise but tended to under-deliver.

Easing regulations and a surge in online banking are driving the change, with several overseas lenders increasing investment plans for the country to win affluent clients away from domestic rivals, senior bankers told Reuters.

Improved performance in India and its basis in the take-up of digital retail banking services could also offer hope for other large markets with potential far greater than the profit so far delivered, such as China.

"With transaction banking going very strong and retail banking picking up pace, a lot of foreign banks globally are now focusing on India and registering better performance," said Sanjoy Datta, Deloitte India financial services practice head.

"It may pose some challenges as banks plan to expand more into the tier-two towns but overall, foreign banks in India will continue to grow as there are no imminent (industry-specific) challenges," he said, pointing to technology as a key enabler.

Lured by a massive economy and rising middle-class income, more than three dozen foreign lenders in India have been vying for a bigger share of the market for decades - yet they account for just 6% of the banking assets.

Aiding the latest growth spurt is regulatory easing in support of technological financial services. For instance, the central bank in August allowed banks - under a "regulatory sandbox" framework - to launch products and services such as digital customer background checks and money transfer.

Moreover, services such as digital payment have been growing rapidly led by a government push to bring more cash-loving merchants and consumers into the formal economy.

Taking advantages of such developments, foreign banks' annualized return on equity (ROE) in India rose to 9.9% in the six months to September-end, from 6.9% a year earlier, central bank data showed. That beat the 6.1% of domestic private lenders for a second consecutive half-yearly period - for the first time since the global financial crisis.

At the same time, local private and state-backed banks are increasingly constrained by souring loans, low levels of capital and governance issues at the biggest players - all in a slowing economy.

"In the next five years foreign banks along with private lenders will have an opportunity to grow as state-owned banks are losing market share due to capital constraints and shift in focus to consolidation," said Ashvin Parekh, an independent financial services consultant.

TECH BOOM

The rapid adoption of technology - for processing payments, acquiring customers and selling products - is the real driver of foreign lenders' success, bankers and analysts said.

"It's become a little bit more of a level playing field and it's up to your digital strategies and your digital capabilities," said Ramakrishnan S., HSBC's India retail banking and wealth management head. "Frankly speaking, there's no reason why we shouldn't grow as much as anybody else."

HSBC's pre-tax profit from its India retail and wealth management unit more than doubled to a record $48 million last year. While small compared with the $6.6 billion it made in its home market of Hong Kong, the figure contrasted sharply with HSBC's $74 million loss in China.

The Asia-focused lender, which intends to double spending on technology and marketing in the coming three years, aims to double profit again over the next three to five years, Ramakrishnan said.

All this even after it cut its number of bricks-and-mortar branches to focus on its digital presence - and in the face of a new regulation giving foreign lenders greater freedom to expand branch networks if they convert them into local subsidiaries.

Previously, the central bank limited the number of branches foreign lenders could open, which Western bankers said was a major source of frustration.

U.S. rival Citi launched a wealth management app in January 2019 which allows clients to open investment accounts instantly and without having to visit a branch. Last year, it saw double-digit growth in affluent clients, its target market.

"Sometimes having limited brick-and-mortar presence can actually become an advantage because you start thinking about other ways for customer acquisition, engagement and service and you are not distracted by branch profitability," said Shinjini Kumar, Citi's India head of consumer businesses.

"NICE OASIS"

Even Deutsche Bank, which laid off 18,000 staff globally in July as part of broader restructuring, is enjoying a boom in India, home to its only retail business outside Europe.

Two years ago the bank considered selling the unit but now sees it as a "nice oasis", said Kaushik Shaparia, head of the German lender's India operations.

Deutsche injected nearly 500 million euros ($552.45 million) into those operations in early 2019, its single largest investment in the country. The bank aims to double India revenue from 560 million euros in 2018, Shaparia said, declining to give a time frame.

"Even when the bank is really looking to grow in a very, very efficient manner, we get investment also in terms of headcount and systems. We punch way above our weight compared to what the firm broadly does."

India retail banking a 'nice oasis' for foreign lenders Deutsche, HSBC, peers
 

Related Articles

Israel stocks lower at close of trade; TA 35 down 0.04%
Israel stocks lower at close of trade; TA 35 down 0.04% By Investing.com - Jan 17, 2022

Investing.com – Israel stocks were lower after the close on Monday, as losses in the Banking, Financials and Technology sectors led shares lower. At the close in Tel Aviv, the TA...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email