South African bank FirstRand (FRB) has decided to scale down its Indian retail banking operations, but will continue to service its clients' needs in the country.
The bank announced that a strategic review had shown that although the medium-term operations had been limited by India's regulatory environment, but it remained confident that its retail and commercial franchises should be in a position to compete in the longer term.
FRB Chief Executive Alan Pullinger said the bank would now focus its strategies on growing its businesses in South Africa and the rest of the African continent, which had huge untapped retail banking opportunities.
FRB had initiated its retail operation in India in 2012 with the intent of targeting the millions of unbanked citizens, following on its success in the preceding three years in corporate and investment banking amid the growing trade between India and South Africa.
"That (extension to retail banking) was off the back of a large population, a dynamic country with good growth prospects," Pullinger told the weekly Sunday Times.
"We had a sense that there were opportunities for us to get into retail banking. But the India operations contributed just 4 per cent to the group's profit before tax in the year ended June 2016," he added.
FRB had planned to secure growth through online banking and e-wallet services in India, but this had not materialised.
Pullinger explained that India's banking regulations, which allowed foreign banks to hold only a 5 per cent stake in local banks and permitted foreign banks to operate only one retail branch did not make business sense for FRB.
"FirstRand remains fully committed to those business lines that remain as part of the India branch, particularly the corporate and investment banking," Pullinger confirmed as he expressed the hope that the Indian banking regulatory environment in the longer term would be more conducive to growth.
Bradley Preston, chief investment officer at Mergence Investment Managers, told the weekly that FRB's strategy to focus more attention on Africa was related to the size of the market.
"While there is a large unbanked market in India, the same is true for Africa. What is key is the level of competition and the ability to realistically build market share and maintain attractive returns on equity," Preston said.
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