Foreign lenders set lower base rates

Foreign lenders have opted to set their base rates at least 50-100 basis points (bps) lower than their domestic counterparts.

The two largest foreign lenders in the country Citibank and Standard Chartered Bank have both set their base rate at 7.25 per cent – at the same level as HDFC Bank – and 25 bps lower than the country’s largest lender State Bank of India (SBI). The third largest foreign lender HSBC announced its base rate at 7.0 per cent while Deutsche Bank has gone even lower at 6.75 per cent.

Apart from SBI, all other large major public sector lenders – Bank of Baroda, Bank of India, Punjab National Bank and Union Bank of India – have set their base rate at 8.0 per cent.

“Given the size of our balance sheets, there is no question of a rate war with domestic banks. Our base rates reflects the area of the market that most foreign banks operate, which is at the short end,” said a senior executive of a foreign bank. “Most foreign banks are not active in the term loan market or infrastructure loans.”

Some foreign banks have a much leaner cost structure compared to their public sector counterparts. Standard Chartered Bank, for instance, has a current account, savings account ratio of 60 per cent as of 31 March.

Foreign banks have smaller balance sheets compared to their domestic counterparts and tend to rely much more on fee income for profits. Unlike Indian banks, they also face restrictions on the number of branches they are allowed to open.

As of March 31, 2009, Citi, the largest foreign lender, had a domestic loan book of Rs 39,919.94 crore compared to ICICI Bank’s 2,18,310.85 crore at the end of the same period.