Foreign Banks in India: European Banks deleveraging in Asia

A key feature of transacting and building relationships with global banking brands in India is to note their reflexivity to pressures in Europe that gets limited to Sout East Asia and China and never impacts us in India. Most likely the current european banks deleveraging is also expected to go along the same lines.

While Middle East and Central Asia have long been given away to their culturally more akin regions in Africa for all Deals and management control globally in the Banking and Finance markets, even in Asia ex Middle East and Japan the two distinct splits of China and SE Asia  North Asia incl Taiwan, Hongkong and Korea and India and south Asia continue to move on distinctly independent lines. The banking business of HSBC and Stanchart for example , who are not deleveraging that frantically, business is in fact booming in China and remains dull in India in corporate and investment banking business. Those that are deleveraging however would be critically taking a call on Asia assets that total $560 bln of the $3 tln in lending assets of European

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banks. With Yuan business becoming dull and all not well on the home front those under fire would not be able to plan growth in China and may thus include India assets again in the Exit column

In China, FIEs have been bearing more than 50% of the trade and a significant chunk would work through Foreign banks from the volume of $1.67 tln. Foreign Banks exposure incl Off Balance sheet assets and Transaction Banking products is $1.6 Tln (BarCap)

While 40% of the deleveraging that banks need will be eked out of Risk optimization, changing risk weights of categories like manufacturing and even Geographic exposures and thus reducing RWA, the rest will be real deleveraging by selling down existing credit assets and reducing probability of considering new credit business in Asia. The required $300 bln in deleveraging, ostensibly over 5 years and more could come faster out of intractable portfolios in Asia if and when a choice arises for these European banks  as BNP , Credit Agricole and SocGen or those deleveraging or shutting down exposures in the market book like Credit Suisse Banks have started repatriating funds and cutting back on  loans

In the melee, it is unlikely that the 10% market share of the Foreign banks in India is hurt much though it is

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unlikely that they would readily incorporate RBI’s concerns about having grown off balance sheet or transaction exposures without committing to real lending in the country.

Banks such as CA and BNP may not like to continue in India with the limitations facing them and their own myopic concerns in committing to asset based growth even as ANZ that re-0entered India in 2006 and NAB and CBA continue with single branch existence in India to base growth in Corporate Investment Banking in the region without planning any roll outs for their retail franchise.

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As Wealth managers like UBS already have offshore business out of Singapore or sometimes Hongkong nad Dubai, they can well reduce their risks in India and go back without a loss to India and their own even as they pass up growth opportunities in a growing consumption economy.

The impasse over the impracticability of transferring extra licences from the RBS sale to HSBC who has made the purchase continues in a stalemate , banks noting they would abide by RBI’s direction