MUMBAI/HONG KONG: Global financial firms in fast-growing but restrictive India are making small investments and growing organically in the hope of some bigger action when foreign ownership limits are reviewed in 2009.
From banks and brokers to insurers, fund managers and exchange operators, foreign firms want some of the business that boosted the Indian profits of banks like Citigroup and Standard Chartered by between 18 and 30 % in 2005/06.
“Our constraint is that we don’t have enough branches,” said Sanjay Nayar, India chief executive officer at Citigroup, which, like other foreign banks in the country, can only open a handful of branches each year.
“We look forward to opening more branches as and when we receive licenses, and increasing our presence in not just the big cities but also in semi-urban areas where we currently do not have banking presence,” he added.
Overseas banks are looking with a keen eye towards 2009, when India will review rules that limit foreigners to holding less than 5 % in domestic lenders.
To tap growth in consumer finance for now, Citigroup and rival foreign lenders such as HSBC and Standard Chartered Plc have set up finance companies to get around central bank restrictions on opening new branches.
Elsewhere in the financial sector, foreign companies are forming joint ventures, buying minority stakes, or, where they can, going it alone to broaden their exposure to India’s 9 % economic growth.
This month, French lender BNP Paribas extended its alliance with India’s Geojit Financial Services Ltd. to institutional brokerage and raised its stake in the firm to as much as 34 %.
German insurer Allianz, which owns Dresdner Bank, has said it may enter India’s banking and asset-management markets.
And number-two US Life Insurer Prudential Financial Inc. plans to form an Indian life insurance joint venture with leading real estate firm DLF, becoming the latest in a string of overseas players entering the life insurance sector, where foreign ownership is capped at 26 %.
2009 AND BEYOND
Foreign banks are expected to boost their holdings in Indian lenders if allowed to after 2009, but industry players said rapid liberalisation was unlikely in a market where 40 % of the adult population does not have access to banks.
“I think it will be a gradual opening -- it won’t be a big bang,” said Romesh Sobti, country executive at Dutch bank ABN AMRO, which will open its 28th Indian branch this year.
But as the Indian economy, Asia’s fourth largest, expands, companies and individuals will demand better financial services, which analysts say may hasten liberalisation in the sector.
Indian firms have been on a global acquisition spree, led by Tata Steel, Hindalco and drug makers Ranbaxy Laboratories and Dr. Reddy’s Laboratories
Individuals, meanwhile, are snapping up financial services products. Mumbai is crowded with billboards advertising mutual funds and insurance policies to the country’s newly-monied.
“As Indian companies become global, they will need more sophisticated services,” said Sanjay Aggarwal, head of financial services at KPMG in Mumbai.
Opposition from political parties could curtail reforms in the industry, where tight control over banks has survived more than 15 years of liberalisation in the country.
Two years ago, the government said it would raise limits on foreign holdings in insurance firms to 49 % from 26 %. Communist allies of the ruling coalition have so far blocked the move.
Adding to uncertainties about the review to limits on foreign banks in 2009, federal elections are due that year, and the central bank will have a new head by then.
“Liberalisation is definitely bound to happen, but the pace will depend on demand for sophisticated services combined with the political climate,” Aggarwal said.
Despite the hurdles, the sector offers huge potential.
India’s most valuable bank, ICICI Bank, has a market value of $17.8 billion. By comparison, China’s big banks rank among the world’s largest by market value, with Industrial and Commercial Bank of China worth $213.7 billion.
Giuseppe De Giosa, chief representative for South Asia at number-five Italian lender Banca Monte dei Paschi di Siena, said the bank was closely watching developments and opportunities in India, which he likened to China in the 1980s.
“Given the experience of China and seeing how China has developed and looking at the potential of this market, going forward, many European banks would like to set up branches.”