Retreat of foreign banks in India due to various adverse trends

Over the years, foreign banks have shown a tendency to limit their business in India. While most of these institutions have maintained their reach in the institutional and investment banking sector, they have stayed away from retail banking. Citigroup recently sold its retail business to Axis Bank in a cash deal. The deal was worth about ૬ 1.5 billion. In the past, FirstRand UBS, Barclays, BNP Paribas, HSBC and RBS have limited or stopped their retail business. This is due to the complex compliance requirements of the Reserve Bank of India and the competitive nature of the retail banking sector. There is no doubt that there is a large middle class in the country which is very much interested in financial planning. In addition, there is a new class of highly competitive local banks and non-backing financial companies and fintech companies in India who are eager to serve in this field. Foreign banks are not able to compete with local banks in terms of business size and are reluctant to invest in the technology required for this. Citibank, for example, says it could invest ડો 500 million in equity that will be redeemed from deals elsewhere in less competitive areas.

Citigroup has also moved away from retail banking to 15 other countries, as size is more important in retail banking than higher margins. To be effective in this area, the service provider needs to operate on a large scale and have access to multiple markets and regions. Moreover, the Indian financial economy has already gone largely digital.

This means that the country is investing heavily in technology to stay competitive in the world in the field of retail banking. Due to these constraints, it is almost impossible for a foreign bank to compete with a local bank.

The risk of default in corporate banking was also high until the epidemic. Retail customers very rarely default. This means that banks have diversified into retail risk against the risk of default. The epidemic changed that attitude as retail loans quickly defaulted. As this access to retail no longer provides protection against risk, banks have reviewed their corporate strategies against retail. While foreign banks have stayed away from the retail business, Indian banks will also have to consider this commitment.