Home / Industry / Indian banks make inroads into Myanmar

Mumbai: Several Indian banks are establishing a presence in Myanmar, a country that is both the key to the success of India’s much-touted “look East" policy, and the latest late-blooming-boomtown in this part of the world.

United Bank of India, Bank of India and State Bank of India (SBI) have already established or are venturing into the country.

The so-called “look East" policy refers to India’s attempts to build economic relationships with South-East Asian nations.

According to bankers, bilateral trade between the countries will rise exponentially once the road project to connect India’s Mizoram with Myanmar and Bangladesh gets operational. Incidentally, the World Bank in June granted a soft loan of $107 million to develop the road project.

India-Myanmar trade is expected to reach $3 billion by 2015.

Indian companies including ONGC Videsh Ltd, Jubilant Oil and Gas Pvt. Ltd, Gail (India) Ltd, Essar Projects Ltd, JK Paper Ltd, Telecommunications Consultants India Ltd (TCIL) and Rites Ltd are present in Myanmar.

The Tata Motors Group also plans to set up a heavy-truck assembly plant at Magwe, central Myanmar.

The country’s considerable hydrocarbon assets and the fact that it has just emerged from behind an iron curtain of sorts make it an attractive destination for foreign investors. Last year, the World Economic Forum held a well-attended event in Myanmar’s capital Naypyidaw.

Indian companies operating in Myanmar will need financing from Indian banks to expand their operation. In June 2013, then commerce and industry minister Anand Sharma led a business delegation to Myanmar to enhance economic cooperation between the countries. The minister conveyed Indian banks’ willingness to start operations in Myanmar.

This is also part of New Delhi’s strategic push to counter the growing influence of China in Myanmar. In 2012, the finance ministry asked state-owned banks to explore the opportunity.

Recently, SBI received approval from the Central Bank of Myanmar to open a representative office in the country, said a senior official of the bank. The bank will be opening the office within the next one month and hopes to set up a full-fledged banking operation in the country over time.

Unlike a full branch, a representative office does not offer full banking operation, but works as a liaison between the parent bank and clients.

Many other state-owned banks, including UCO Bank, Canara Bank, Punjab National Bank (PNB) and Bank of Baroda are considering opening operations in Myanmar, said a finance ministry official.

Both officials asked not to be identified.

However, the banks are not in a hurry to expand.

According to a senior official with a large government-owned bank, who did not want his or his bank’s name to be published, all banks are waiting for more clarity on Myanmar’s subsidiary model of business.

Myanmar’s central bank said in December that it would let foreign banks establish wholly owned subsidiaries in the country. A subsidiary will have to incorporate in the country and will have to raise its own resources, instead of depending on the parent bank’s balance sheet. Indian banks are not in favour of such a plan.

“The subsidiary model has its own pros and cons. Raising resources for a locally incorporated bank in an unsophisticated financial system could be problem for banks," said the official cited above.

A 5 December story by Nikkei Asian Review said Myanmar planned to allow three-five foreign banks to set up wholesale banking operations in Myanmar and would issue full branch licences within two or three years.

For starters, these banks will be allowed to provide corporate banking, project finance, international remittance, treasury and trade services. At a later stage, foreign banks may be allowed to give consumer loans.

If they open just representative offices, Indian banks may only ending up functioning as front offices for their parents. If they have to enter even wholesale banking operations, they will, in all likelihood, have to incorporate their operations locally.

“We have not firmed up plans yet on Myanmar, though we have plans to start operation there in the near future," said an official with Bank of Baroda.

A PNB official said the lender has no immediate plans but is interested in entering Myanmar.

Myanmar has only recently opened up its economy for foreigners, after Thein Sein, known as a reformist, was nominated as the President of the country in early 2011.

Last year, the country introduced its first ATMs. Myanmar has only one stock exchange, the Myanmar Securities Exchange Centre, where a few shares are listed. Trading is rare.

Trade between Myanmar and India in 2012-13 was worth a little over $1.8 billion, of which India’s exports to Myanmar accounted for $532 million and imports from Myanmar $1.33 billion. The two countries have set a target of $3 billion of bilateral trade by 2015.

A June 2013 report by McKinsey and Co. said Myanmar’s economy grew 27% between 2010 and 2011, and this growth rate will likely be maintained through 2018. After that a growth rate of 18% can be maintained through the rest of the period to 2030. This may take up Myanmar’s gross domestic product to $200 billion plus, over four times its present size, the firm said.

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