Mumbai: State-run Canara Bank is in advanced stages of getting banking licences to operate in Qatar, Johannesburg and Frankfurt as it looks to ramp up its overseas business, a top official told Reuters.
The Bangalore-based bank is also applying for a licence in New York and is exploring options in Nairobi and Nigeria, chairman and managing director Sunder Rajan Raman said over the telephone late on Thursday.
As Indian companies farm out across the globe chasing business where they can through a slew of M&As and joint ventures, stodgy Indian banks are spreading following suit, as much to retain clients as to chase profits.
Indian banks are eager to explore opportunities for lending to Indian corporates operating overseas, trade transactions and mergers and acquisitions, mainly through external commercial borrowings (ECB).
“Increasingly, Indian companies are raising funds in foreign currencies for a growing number of reasons. If you have branches abroad, it helps you do more business,” Raman said.
“So, many times, a bank not having a business abroad could be a handicap because you wouldn’t be present in the ECB market in a big way.”
Canara Bank expects overseas business to contribute 5% of overall revenue in 2 years from 3.5% now, he said.
The state-run lender is also considering the inorganic route to expand its foreign business.
“We wil keep our ears and eyes open. We are a strong bank financially. So in case we find a good fit, which will be adding value to our balance sheet and it will be complimentary to what we are, we can look at it,” Raman said.
India’s top lender State Bank of India is also looking to ramp up its overseas operations by acquiring banks in Africa and Southeast Asia.
Net interest margin
Canara Bank expects net interest margin (NIM) of around 3% in 2011-12. For the current financial year, it is seen at 3.2%.
Margins for Indian banks are likely to be under pressure in the next fiscal starting April due to high interest rates.
Recently, Union Bank of India also said there could be pressure on margins, if the interest rate hikes continue.
“It is possible that the pressure on margins (for the sector) will ease in the second half of the next fiscal,” said Raman, adding maintaining margins is the topmost challenge for the Indian banks.
“With deposit rates continuing to be at a much higher level than what it was just 2-3 months ago, I think there will be a more ready acceptance (among borroweres) of the reality and so also the readiness to pay reasonable price,” he added.
India’s central bank has raised key policy rates seven times since last March to tame stubbornly high inflation, and is expected to continue with its tightening when it meets next week.
Raman ruled out any immediate hike in Canara Bank’s rates.
“That is always under watch. As of now we do not have any such plans. These things are under continuous review,” he said.
Gowing the share of low-cost current account savings account (CASA) deposits is one of the measures to check margin erosion, he said.
“We have taken a lot of steps (to improve CASA). We were at around 29% and now we are around 31%. By FY12 we see our CASA deposits at 33-34% of total deposits.”
At 3:27 p.m., shares of Canara Bank were mostly flat at Rs 610 in a weak Mumbai market.