Large Foreign Banks are Retreating from India – What are the Opportunities Behind the Trend?

Until a few years ago, there were laments from Indian banking stalwarts about how foreign banks were gaining a stronger hold on the Indian banking industry than some of the central banks. And these concerns were not unfounded – foreign banks have risen meteorically in the last fifteen years. According to a report in the Economic Times, foreign banks in India have reported twofold growth in their advances every five years. The total advances of foreign banks stood at INR 75,318 cr in March 2005 and rose to INR 1.63 lakh crore in a matter of five years. This number had risen dramatically by March 2015, when it stood at INR 3.27 lakh crore in March 2015.

Have Foreign Banks Had Enough of India?

However, concerns about foreign banks stealing the spotlight have since died down because foreign banks in India are showing a slow but sure decline in their market share. The change might not be too evident presently, but it’s brewing nevertheless and can be seen in the moves made by some major foreign banks in recent years.

UK banking giant Barclays, for instance, called it quits on the broking and equity capital market business in India in January this year. The decision that Barclays has taken only underlines the slow decline in the stake held by foreign banks in India. Deutsche Bank decided to sell its credit card business even as Barclays downed the shutters on its retail banking unit in India. UBS, a leading Swiss lender, gave up its banking license, joining others who had done the same, including Goldman Sachs and Morgan Stanley. In 2013, UK-based RBS closed down 23 of its 31 Indian branches.

Decreased Practicality of Global Banking is Prompting Banks to Trace their Steps Back

The reality is establishing itself. India is no longer a priority for many banks who have survived the financial crisis of 2008-09. Back home, regulatory mandates are forcing these banks to maintain a certain amount of capital and comply with regulatory requirements. The only way to achieve this is by retreating so as to reduce operational costs and protect their bottomline.

It is interesting to see, however, that the exit of large foreign banks has acted as an opportunity for Indian private sector bankers. The next few years will likely see Indian banks open units in areas where raising dollar funds is a possibility. Analysts are eager to see where this trend leads – could it lead to smaller Indian banks making neat profits or will banks from MENA capitalize on this opportunity?