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. Deal volume in India surged three-fold to $67.2 billion in 2010 from $21.3 billion in 2009, according to Thomson Reuters data, including Bharti Airtel’s $9 billion buy of the African operations of Kuwait’s Zain.
Overseas acquisitions accounted for nearly half of the Indian M&A volume in 2010, the biggest year for outbound deals from Asia’s third-largest economy.
This year, Aditya Birla Group bought U.S.-based Columbian Chemicals for $875 million, a state-run firm is bidding for a Mongolian coal mine, and Reliance Industries has notched up shale gas JVs with U.S. firms.
“We have to service all our Indian clientele. And if we cannot offer them foreign currency funding, we are missing a huge opportunity of further engaging our customers,” Melwyn Rego, executive director, IDBI Bank, said.
IDBI Bank started operating in Dubai in early 2010 and has applied to the Monetary Authority of Singapore to set up a business and has plans to start operations in London.
“Our broad strategy is that we should have one in the Far East, one in the Middle East and one in the West. Basically, we are following our customer base,” Rego told Reuters.
Providing finance and M&A advice is opportunity for commercial banks to generate revenue and gain credit in deal-making league tables, another catalyst for banks.
India’s huge remittance economy is another, as more and more expatriates prefer banks to money transfer firms. Indians remitted an estimated $49 billion in 2009, according to a World Bank Development Prospects Group study.
India’s top two lenders, State Bank of India and ICICI Bank , have plans to expand existing operations abroad while state-owned Allahabad Bank and Punjab National Bank are expediting theirs to spread wider.
Punjab National Bank Ltd ( PNB )) acquired 63.64 percent in Kazakhstan’s JSC Dana Bank in December.
“We are already having license in New Zealand. We might start New Zealand operations in 3 months,” said B.A. Prabhakar, executive director, Bank of India.
“We are also applying to Uganda and Botswana, we have also made an application to Canada. In twelve months time Canada will be operational. Uganda might happen in 6-9 months time, I think.”
In late 2008, when the collapse of Lehman Brothers inter-twined with the global financial crisis, raising money was a challenging task even through borrowings, said Puneet Gulati, an analyst with JM Financial .
Indian banks are looking for early strikes as economic environment improves globally, Gulati added.
Current rules allow each Indian company to raise up to $500 million per fiscal through foreign borrowings. A withholding tax of 20 percent is applicable on interest earned by investors in foreign borrowings of local companies.
The interbank cost of borrowing dollars, euros and sterling based on 3-month Libor has hit new lows as central banks and governments flood financial markets with liquidity, raising appetite for India-specific bonds.
The United States, UK and the Middle East have a high concentration of non-resident Indians (NRI). Nearly all of them have ties in India and remit part of their earnings home.
In fact, banks’ increasing involvement in money-transfer has forced many transfer companies like Western Union and MoneyGram International to look for newer services.
“There are a lot of advantages for banks to have their branch network abroad, specially in NRI-centric countries and/or trade relationship,” J Moses Harding, head of international banking at IndusInd Bank told Reuters.
“The selection criteria is to partner with one of the top three banks in respective countries, who do not have India presence and have good appetite for Indian business and India risk.”
IndusInd has representative offices in Dubai and London and strategic relationships with banks in UAE and Qatar.
Harding said business opportunities emanate both ways — in bound into India and out bound from India.