Indian banks' overseas business grows 7.5-43.1% in FY20, shows data

In FY19, lenders had seen a contraction in global loan book after letters of comfort were discontinued

Indian banks, after witnessing a flat rate of growth or contraction in overseas advances in FY19, reported an increase of 7.5-43.1 per cent in global lending in FY20, with emphasis on local businesses and external commercial borrowing (ECB).

In FY19, international business received a blow after letters of comfort (LoCs) were discontinued in the wake of the uncovering of the fraud at Punjab National Bank in February 2018.

In March that year, the Reserve Bank of India (RBI) discontinued issuing letters of undertaking (LoUs) and LoCs for trade credit in import.

Bankers said businesses linked to India (corporate and NRIs) had a dominant share in the pie. But there has been an effort in FY20 to broad-base activities by growing the share in local syndicated loans and retail markets.

State Bank of India (SBI), the country’s largest bank, said it had facilitated Indian companies by including greenfield ventures and arranging for debt in foreign currencies through ECBs via syndicated deals in conjunction with other Indian and foreign banks, and through bilateral arrangements. 

The bank has sanctioned foreign-currency loans of $9.2 billion to companies related to India and $11.35 billion to overseas entities. 

In the field of energy, the bank has provided $1.82 billion to petroleum companies for augmenting India’s energy security amid unstable crude oil prices and forex volatility.

Dinesh Khara, managing director, SBI, said the situation was fluid and business volumes would depend on trade flows and economic activities in local markets. 

Much of the business is generated in the US, the UK, Hong Kong, Singapore, and Bahrain. The bank has an enabling provision to raise up to $1.5 billion in global markets. The priority will be optimising the cost of funds while choosing the mode of fund raising (bonds, loans, or multilateral agency assistance), he added.

A K Das, managing director and chief executive, Bank of India, said the exposure of banks to international business had grown. Also, oil-marketing companies have raised money abroad.  

As a strategy, the bank is putting emphasis on growing local businesses. This has worked in the UK and Kenya. This approach will be spread to other geographies as well.

In the case of Bank of Baroda, its emphasis has been on building the credit book by funding local clients and non-Indian entities in their respective regions. Loans to local clients have grown from Rs 33,987 crore in March 2019 to Rs 41,415 crore in March 2020 and to non-Indian entities from Rs 8,830 crore to Rs 10,364 crore.

During FY20, SBI consolidated its overseas operations to achieve capital conservation, cost efficiencies, and synergies in overseas markets. 

It rationalised overseas operations by closing down four branches: Nassau (Bahamas), Paris (France), Jeddah (Saudi Arabia), and Tianjin (China), and merged the branches in Gulshan (Dhaka) and Verdun Road (Singapore). 

During this period, a sub-office was started in Melbourne to increase share in remittances and trade finance businesses.