Last Thursday afternoon, I sneaked into the Camden Centre on Bidborough Street at King’s Cross, before London’s oldest Durga Puja was formally opened for worshippers. Ajay, a local doctor and accomplished Rabindra Sangeet singer, was rehearsing for his evening programme while a few others were putting up a Bank of Baroda banner on the dais where Ajay and other artistes were to perform.
Indian banks’ overseas business model hasn’t changed— festivals and community gatherings continue to be the most critical points of sale. On Wednesday, S.R. Sharma, managing director of Punjab National Bank (International) Ltd, or PNB International, the UK subsidiary of India’s second largest public sector bank, headed to Norwood Park in south London after office hours. He was invited by P.L. Suri, a customer, to attend a satsang, a programme of devotional speeches and songs. Sharma met Suri’s guru and many of his friends and is hopeful of converting at least some of them into customers.
State Bank of India, or SBI, operating in London since 1921, has an asset base of $7.3 billion (Rs35,040 crore); PNB International, just two years old in the UK, has assets worth $625 million. There are other Indian banks, too, in the UK such as Bank of India, Bank of Baroda, Canara Bank, Syndicate Bank and a subsidiary of ICICI Bank Ltd, which has the biggest UK balance sheet among all Indian lenders.
Based on 2001 statistics, UK’s ethnic minority population is about 4.6 million, close to 8% of the country’s total population. In 2001, Indians accounted for 1.8% of the total population. Since then it has gone up to about 2% and Indian bankers are chasing this chunk and no one is willing to miss a single opportunity to reach out to the Indian community at Southall, Wembley, Birmingham, Harrow, Slough, Ilford and Leicester. Sharma recently convinced the UK chapter of the Bharatiya Vidya Bhavan, a charitable public trust-run institution dedicated to the promotion of education and culture, to distribute its newsletters to 1,500 members across the UK in PNB International envelopes every month. Last year, his bank sponsored a few awards at the annual function of London’s Goud Saraswat Brahmin Sabha, an organization of the Konkani-speaking Hindu Brahmin community.
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These marketing gimmicks are paying off. PNB International’s deposit base has gone up from $103 million in December 2008 to about $280 million now and the number of accounts from 4,419 to 10,075. The global meltdown has also helped. Up to £50,000 is covered by deposit insurance and many consumers have now started keeping deposits in various Indian banks, including SBI, for fear of losing their money in case of a bank failure. According to Rajnish Kumar, regional head and chief executive of SBI’s UK operations, the bank did not have too many local customers until September last year, but in the past one year it has got many, and now non-Indians account for about 10% of State Bank’s UK customer base.
Indian banks are also developing new deposit products to attract money. SBI, for instance, offers a step-up rate structure where a depositor is paid 3.75% for one year money, but the rate progressively goes up if the money is kept longer. For five years, it can fetch as much as 5%. From customers’ point of view, the step-up structure is a better option than a plain vanilla deposit scheme where one is hugely penalized for withdrawing money ahead of maturity. But these products can help only to a certain extent and Indian banks won’t be able to mop up much unless they start offering other facilities such as debit cards.
Unlike India, where such cards function on the chip and signature principle, in the UK it’s the chip and PIN (personal identification number) norm and consumers punch in the code after every transaction and don’t sign a charge slip. The technology is quite expensive. SBI is working on it while ICICI Bank, Bank of Baroda and PNB International already have it. Each time a bank’s debit card holder uses another bank’s ATM to withdraw money it needs to pay for such transactions, but it also earns a commission when customers use the card for shopping. The debit card offering has possibly helped PNB International get the salary accounts of the Indian High Commission in London, which had been banking with SBI and HSBC Holdings Plc. PNB International now runs the salary accounts of about 125 high commission employees, including Nalin Suri, the new high commissioner.
All Indian banks seem to be keen on collecting deposits, but when it comes to giving loans, they continue to meticulously stay away from retail Indian customers. The main reason behind the diffidence of Indian banks is possibly the lack of a credit history for most of their customers. There are a few agencies that sell credit history data, but until a bank attains a critical mass in loan accounts, no agency tracks the data of its customers. This means the customer of an Indian bank can default on loan repayments and yet continue to get credit from local banks as this information will not be known to them.
Banks in the UK aren’t required to keep money with the central bank or buy government bonds. But things will change as the Financial Services Authority, the banking supervisor, is planning to ask banks to invest 8-10% of their assets in government bonds. Since such bonds are low-yielding, the new norm will hit Indian banks’ profitability. One way of protecting their bottom line could be the creation of retail assets. But this has to be done with caution as KYB (know your business) is as important as KYC (know your customer) for banking in the post-Lehman days.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as Mint’s deputy managing editor in Mumbai. Please email your comments to firstname.lastname@example.org