The radical reforms proposed by the British government’s Independent Commission on Banking may bring the curtains down on Indian banks’ derivative and proprietary trading businesses there.
According to bankers, Indian lenders will not be keen to form a separate company for these businesses, as suggested by the Commission, as they are not large players in this space.
The Commission, chaired by John Vickers, has proposed that banks in Britain ring-fence their retail businesses from investment banking operations. The move is to secure retail depositors’ money in the event of a financial crisis. Banks, it says, should be allowed time till 2019 to implement the recommendations.
| OVERSEAS FOOTPRINT Indian banks’ branch presence in the UK | |
| ICICI Bank | 11 |
| Bank of Baroda | 11 |
| Bank of India | 8 |
| Punjab National Bank | 7 |
| State Bank of India | 7 |
| Source: Banks’ websites | |
“The size of our derivative business is fairly small in the United Kingdom. Hence, for us, it does not make sense to have a separate structure for this business. It will be counter-productive,” said a senior executive of a bank having presence in the UK. Bankers were not willing to speak on record because of the sensitivity of the issue. But on condition of anonymity they said the new norms would make investment banking activities in Europe unattractive for Indian lenders.
“Indian banks are not aggressive in investment banking activities. Nevertheless, some of the banks have exposure in this segment,” said a top official with a large domestic bank having operations in Europe. “While the recommendations will have a limited impact on us, the United Kingdom’s primacy as the global financial hub will certainly go down.”
It has also been proposed that banks accepting deposits from retail clients should lend only to companies or for projects within the European Union. Typically, Indian banks use their offices abroad to service the global needs of domestic companies.
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“It means that my UK office can finance a deal like Tata Motors’ acquisition of Jaguar Land Rover, but cannot fund a transaction like Bharti’s acquisition of Zain’s businesses in Africa. So, in that sense, it will have some impact on our overseas balance sheet expansion,” said a banker.
The committee has recommended higher capital norms for banks, but most bankers said Indian banks would “comfortably meet” the proposed norms on capital adequacy.