The government has asked state-run banks, which are looking at ways to downsize their overseas operations to ensure efficient use of capital, to consider the option of consolidating branches of different banks under one unit, two bank officials said.
In a meeting with bankers last week, the Department of Financial Services (DFS) asked the lenders to discuss this issue within their respective boards before taking a final call, one of the two bankers cited above, an executive director of a state-run bank, said on condition of anonymity.
“The government has questioned the presence of multiple banks in a single country. It believes that a single subsidiary formed with five-six banks coming together and infusing capital will be more efficient,” the banker added.
Besides the subsidiary model, PSU banks are also looking to close down branches or selling off subsidiaries to focus on markets that give them maximum returns.
Bank of Baroda, for instance, with 106 offices across 23 countries, is looking to focus on four countries— the US, UK, United Arab Emirates and Singapore,—as it contributes to 75% of the international business of the bank.
“We are focussing on geographies which contributes maximum to our business. We may look at selling off some of our subsidiaries or closing down the branches,” said a senior official of the bank on condition of anonymity.
Small lenders with a limited overseas presence such as UCO Bank are also going slow on fresh disbursement given capital constraints. Others such as State Bank of India (SBI) are re-orienting lending practices.
From a target-based budgeting system, the country’s largest lender SBI has now moved to risk-based capital allocation with more focus on returns, according to B. Sriram, managing director.
The bank, with 195 foreign offices spread across 36 countries, is also focusing on funding local business instead of just focusing on the operations of Indian subsidiaries.
“We ventured into most of the foreign territories based on the country’s trade relation and Indian investment and diaspora. Now we feel it is time for us to do more local business because we have spent some time there. It is incumbent on us to forge relationship with local business in terms of Micro, Small and Medium Enterprises (MSME) credit, syndication and long-term funding,” said B Sriram, managing director, SBI. “This also gives our book more hedge in terms of client profile. Otherwise, it would be merely duplication of Indian business in both domestic as well as international book,” he added.
On 25 August, Mint reported Punjab National Bank’s (PNB) plan to sell a stake in its UK subsidiary PNB International. The bank is looking to improve the profitability of its subsidiary to $30 million by end of this fiscal from $7 million at the end of June quarter before roping in an investor. The report also said the bank had hired consulting firm Deloitte UK to help turn around the subsidiary’s operations. PNB has 12 offices across nine countries.
“Foreign offices of most PSU banks have not been performing well for the past two years. So, any kind of consolidation move is positive from the perspective of capital. Just like sale of non-core assets, rationalising foreign offices is also an important to route to strengthen capital position,” said Udit Kariwala, senior analyst at India Ratings.