Overseas Operations To Be Reviewed

The State Bank of India (SBI) has decided to take a fresh look at its network of foreign branches and subsidiaries in the wake of Tarapore panel recommendations on capital account convertibility within the next three years.

The role of our foreign branches and subsidiaries will change after capital account convertibility is accepted, SBI chairman M S Verma told Business Standard.

Verma said that the SBIs 52 overseas offices spread across 35 countries, will act as outposts of the bank for looking at and vetting business opportunities abroad.

Also, these foreign branches will be sources for locating low cost funds for the bank. After some time, the bank might exercise the option of raising low cost funds from the international markets.

Verma emphasised that the bank does not intend to increase its lending abroad in a big way even after capital account convertibility comes into operation. The core strength of the bank is, and will remain lending to domestic clients, said Verma. However, these foreign branches will be exploited by the bank to better serve the requirements of domestic clients.

The competition between SBI and foreign banks will not be limited to just rupee denominated business. The bank plans to deal in a basket of currencies with rupee and foreign currency as a package. However, the bank will not venture into too many foreign currencies, limiting itself to one or two select currencies from each region.

Elaborating on the branch expansion policy, Verma said that SBI had opened two new branches, in Johannesburg, South Africa and San Jose, Silicon Valley, USA. Offices will soon also be opened in Shanghai, China and Sydney, Australia.

The banks foreign offices have shown steady increase in net profits. The net profit of the banks foreign operations increased by 55 per cent to Rs 143,58 crore. Last year too (1995-96), the net profit of its foreign operations had increased by 51 per cent.

Verma explained that even though the bank had clocked a commendable 60 per cent rise in net profit, it could have risen further had the foreign exchange operations of the bank done better. Although turnover from forex operations has gone up last year, earnings on are lower.

In fact, earnings from forex operations fell by Rs 225 crore from last years figures. This is mainly because of reduced margins as a result of increased competition.

Also, volatility in the forex market has been much lower this year which is a impediment to good earnings from this sector.

Under the scheme of foreign currency-denominated loans out of the FCNR(B) deposits of the bank, launched in December 1996, the bank sanctioned loans aggregating $245.82 million to 35 borrowers and disbursed $135.38 million to 21 borrowers during the year.

The bank has also played a major role in arranging syndicated loan amounting to $1.46 billion during the last fiscal in the Asian loan market. The bank also extended short-term foreign currency loans amounting to over $1 billion to Indian corporates and over $225 million as medium-term loans in the same period.