Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Foreign banks: A formidable lot - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 18, 2002

    Foreign banks: A formidable lot

    Indian private banks posted commendable performance in FY01. The sector’s interest income jumped by 54% and earnings grew by 25%. Foreign banks, operating in India too followed the private banks with sparkling financial performance. Most of these banks leveraged other income growth to drive earnings.

    Save for Bank of America, almost all banks reported a double-digit growth in interest income and higher net interest margins. However, a significant rise in operating expenses resulted in these banks posting operating losses. This is also reflected from their high cost to income ratio due to increasing technology and marketing expenses.

    Comparative operating performance
    FY01 Growth in
    interest income
    NIM OPM Cost to
    Other income
    to total income
    Citibank 17.6% 4.3% -4.5% 46.5% 23.0%
    HSBC 32.9% 3.3% -1.4% 47.8% 23.1%
    Standard Chartered Grindlays 3.4% 6.1% -23.2% 60.6% 13.9%
    ABN Amro 41.5% 4.1% -4.2% 42.4% 17.5%
    Bank of America -14.3% 3.5% -3.9% 41.8% 14.0%
    Deutsche Bank 14.4% 5.5% 11.9% 34.7% 31.5%

    Nevertheless, most of the foreign banks are operating with relatively less number of employees capitalizing on their technology infrastructure and marketing network. Their reach across the country, although thin with restriction on opening up braches, they have one of the best employee productivity ratios. In terms of product offerings, they are comparable to private banks. However, servicing cost of these banks (in terms of interest rates and other charges) is relatively higher, which has allowed them higher net interest margins.

    Comparative productivity parameters
          Interest income Profits Business
    FY01 Branches * Employee base * Per employee (Rs m)
    Citibank 15 1,476 11.9 1.9 133.6
    HSBC 28 3,023 4.4 0.7 52.9
    Standard Chartered Grindlays 41 3,122 4.1 0.3 44.3
    ABN Amro 94 910 9.4 0.4 86.8
    Bank of America 4 295 19.4 2.3 197.8
    Deutsche Bank 6 518 10.4 1.8 83.5

    Foreign banks have maintained superior assets quality with concentration on top corporate clients. Priority sector lending norms for these banks are less strict, which have helped them to keep the non-performing assets (NPAs) to advances ratio below 1%, one of the lowest in the banking system. Also, with no requirement to adhere to SLR norms, their credit to deposit ratio is relatively high which is evident from their better returns on assets (ROA) ratio.

    Other key ratios
    FY01 CD ratio CAR NPA ratio ROA
    Citibank 66.0% 11.2% 0.7% 3.2%
    HSBC 62.8% 12.4% 1.0% 1.3%
    Standard Chartered Grindlays 45.3% 12.5% 0.4% 2.7%
    ABN Amro 91.9% 11.4% 1.2% 0.4%
    Bank of America 151.3% 13.0% 0.7% 1.3%
    Deutsche Bank 90.3% 12.7% 1.2% 1.7%

    The budget has opened up the banking sector for foreign banks by giving an option to either operate as branches of their parent or to set up subsidiaries. In case a foreign bank decides to operate as a subsidiary, it will have to adhere to all banking regulations, including priority sector lending norms, applicable to Indian banks. Consequently, priority sector lending norms for foreign banks will increase to 40% from 32%. The new ruling will have an advantage in terms of widening their reach. Foreign banks are presently required to take a branch licence from the Reserve Bank of India before opening a branch. But now under the proposed subsidiary set up, they will have to only inform the apex bank.

    Several foreign banks operating in India may choose the subsidiary route for the benefits it offers in terms of geographical expansion and lower taxes. The subsidiary route would also make the consolidation process easier for any foreign bank seeking to make an acquisition. Increasing foreign direct investment limit in the private banking sector will facilitate the consolidation process. However, it will increase competition for domestic banks particularly in the retail-banking segment.



    Equitymaster requests your view! Post a comment on "Foreign banks: A formidable lot". Click here!


    More Views on News

    SBI: Asset Quality and Slow Credit Remain Achilles' Heel (Quarterly Results Update - Detailed)

    Aug 22, 2017

    State Bank of India (SBI) continues to battle sliding asset quality and sluggish credit growth.

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Should You Take SBI Chief's Advice and Load up on SBI Shares? (The 5 Minute Wrapup)

    Jul 6, 2017

    Does the stock score on the value versus price equation?

    AU Small Finance Bank Ltd. (IPO)

    Jun 27, 2017

    Should one subscribe to the IPO of AU Small Finance Bank Ltd?

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 23, 2017 (Close)