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Is RBI concerned about Indian banks' credit exposure abroad via foreign branches?

Is RBI concerned about Indian banks' credit exposure abroad via foreign branches?

The RBI's concerns are justified as banks did face issues post the global financial crisis in 2008.  In fact, the ICICI Bank had faced challenging times because of its exposure of $ 80 million in the failed Lehman Brothers through its UK subsidiary

In a meeting with the banks' CEOs in Mumbai, the RBI Governor Shaktikanta Das took a review of the banks' overseas business and the risks that would emerge because of slowdown in the economies abroad In a meeting with the banks' CEOs in Mumbai, the RBI Governor Shaktikanta Das took a review of the banks' overseas business and the risks that would emerge because of slowdown in the economies abroad

The Reserve Bank of India (RBI) is closely monitoring the Indian banks' operations abroad in view of the risks that can emerge in a post coronavirus world.

Global economies are staring at a recession and a massive stimulus has created a turmoil in the debt market increasing the possibility of defaults and mark to market losses.

The RBI's concerns are justified as banks did face issues post the global financial crisis in 2008.  In fact, the ICICI Bank had faced challenging times because of its exposure of $ 80 million in the failed Lehman Brothers through its UK subsidiary. The investment was part of its treasury operation. The private sector bank, which had global ambitions, has now scaled down its international operations substantially in the last decade.

In a meeting with the banks' CEOs in Mumbai, the RBI Governor Shaktikanta Das took a review of the banks' overseas business and the risks that would emerge because of slowdown in the economies abroad.

The banks generally offer credit through their branches, subsidiaries and rep offices. The other business areas are forex and derivatives, trade finance etc. The RBI's concerns  are any treasury investments and the possible market to market losses.

But the current balance sheet size of Indian banks' overseas business, in terms of assets, is less than 10 per cent at Rs 15.50 lakh crore as on March 2019. The credit book is at Rs 7.89 lakh crore, while deposits are Rs 5.26 lakh crore.

Surprisingly, it is not the State Bank of India, which has the highest branches, but Bank of Baroda which leads with 38 overseas branches followed by SBI, Bank of India and ICICI Bank. For Indian banks, the US and the UK are the big markets. Many Indian banks have run overseas operation for decades as there are opportunities in trade finance. In fact, the global ambitions of India's corporate sector also offers these banks an opportunity to offer various banking products.

About a couple of decades ago, the Indian banks were very keen to expand abroad. The SBI under its chairman A K Purwar actually acquired couple of small banks in smaller geographies. But post 2008, the banks realised the high risk in operating abroad as they needed management bandwidth to operate and compete with global banks.

There is the famous story of former finance minister P Chidambaram asking the then SBI chief O P Bhatt to explore a takeover bid on Citibank during the 2008-09 period when marquee bank's share price had plunged to just one dollar. Bhatt didn't show much interest because of the lack of bandwidth to manage a global bank.

Also read: Coronavirus: RBI Governor praises banks for near normal operations in lockdown, reviews economic situation

Also read: RBI cancels licence of CKP Co-operative Bank; depositors to get up to Rs 5 lakh

Published on: May 02, 2020, 11:17 PM IST
Posted by: mansi jaiswal, May 02, 2020, 11:17 PM IST