ICICI, BoB seek to upgrade China presence

The growing Indo-China trade and a large retail market in the communist nation is enticing Indian banks to tap opportunities in the fastest growing economy. ICICI Bank, the country's largest private sector bank, and public sector banking major Bank of Baroda (BoB) are planning to scale up their operations in China.

At present, ICICI Bank and Bank of Baroda have representative offices in China. ICICI Bank has a representative office in Shanghai since October 2003. Banking sources said ICICI Bank has applied to the Reserve Bank of India (RBI) seeking its approval to upgrade its operations in China to a branch. Bank of Baroda expects to convert its representative office to a branch by July, subject to regulatory approvals. Public sector Bank of India has a branch presence in the special economic zone at Shenzhen in China.

According to banking regulations in China, a foreign bank should have a representative office for up to 2 years before being allowed to operate through a branch, say bankers. The capital requirement to set up a branch is $25 million. A branch is permitted to conduct business in foreign currency and is permitted to tap the non-resident population. To tap the local chinese market and conduct business in the chinese currency (yuan), a foreign bank has to get incorporated locally and the capital requirement was set at around $125 million, they said.

ICICI Bank remained tightlipped about its plan. "With the growing Indo-China trade, there is a huge business potential in China. We will be looking at scaling up our operations subject to regulatory approvals,'' said the bank. At present, the bank is tapping the chinese market through its Hong Kong branch.

China has over a period of time emerged as a manufacturing hub and there's huge trade finance opportunity to be tapped.

"The bank is keen to build its balance sheet on the corporate side of the business, with particular focus on small and medium enterprises. Through a representative office, it cannot readily finance the trade out of Hong Kong. A branch presence will give the bank freedom to capture this business and work with Indian corporates,'' said a banking source. "ICICI Bank is currently studying the market and is exploring opportunities and could look at launching retail operations in the country later,'' said banking sources.

Sun Yuxi, the Chinese ambassador, recently said the Indo-Chinese trade is expected to grow at 40 per cent annually. The bilateral trade, which was $25 billion in 2006, is likely to exceed $50 billion by 2010. He also identified eight key areas for joint businesses in telecom, electrical, electronics, agri business, iron and steel, chemicals, cotton, silk and even services.