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ICICI Bank, one of the largest private lenders in the country, is calibrating its global ambitions — selling its subsidiary in Russia, repatriating capital from its UK (United Kingdom) and Canada arms, and shrinking its international balance sheet. The uncertain global macroeconomic environment, strict regulations and limited growth opportunities appear to have made the private lender less enthusiastic in expanding its business outside India.
“We think that in the near term, the bank’s growth in the domestic market, led by retail business, will be higher than its international business. We will continue to calibrate our growth and capital commitment in international geographies based on business opportunities in those countries, that are in line with our strategy and the overall return on equity target for ICICI Group,” a spokesperson of the bank said in an e-mailed response to Business Standard.
On December 5, the lender said it had decided to sell its shareholding in ICICI Bank Eurasia (its Russian subsidiary) to Sovcombank, subject to execution of definitive agreements and regulatory approvals. The deal is expected to conclude by the end of this financial year. The pricing will be determined on the transaction completion date, based on financial statements of ICICI Bank Eurasia. The Russian subsidiary accounted for less than 0.1 per cent of ICICI Bank’s consolidated total assets at the end of September 2014, and consolidated profit after tax for the first six months of 2014-15.
The bank has also been optimising capital in its foreign banking subsidiaries. ICICI Bank’s total equity investment in its UK and Canada arms has been reduced from about 11 per cent of net worth to seven per cent between March 2010, and March 2014. ICICI Bank Canada repatriated 75 million Canadian dollars of capital in 2013-14, while ICICI Bank UK repatriated $100 million in the previous financial year.
Deepak Haria, senior director at Deloitte in India, said, “Indian banks have tended to expand internationally to facilitate their customers’ ambitions to expand globally. The viability of such international expansion by Indian banks needs to be carefully evaluated and reviewed periodically. “
“It is also sensible to allocate capital efficiently when faced with scarcity of capital. We continue to advise that international expansion should be very carefully sized up relative to the opportunities that the India market offers,” he added.
Experts said local regulations also pose a challenge. Shashwat Sharma, partner (management consulting) at KPMG in India, said, “Indian banks do face a lot of challenges in overseas markets in terms of regulatory regime and restrictions on expansion opportunities — in UK, if a bank has certain amount of retail business, it has to be present as a subsidiary and not (through) branches.... Starting a subsidiary has its own cost, incurring which might not be viable from a business perspective. India presents tremendous opportunities, thereby, focusing on domestic business with a selective and targeted international expansion can provide the right balancing act for growth.”
With Indian corporate groups now taking a pause from expanding their international footprint, business opportunities for domestic banks in overseas markets are also shrinking. “Before 2008, many Indian corporates were going overseas — making acquisitions, setting up projects. Domestic banks followed, sensing a business opportunity. That phase is now over. It now makes sense for Indian banks to focus their energy on the domestic market, where at least some growth is happening,” Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, said.
ICICI Bank has now decided that its subsidiaries in the UK and Canada will focus on short-term loans, working capital finances, trade and transaction banking products to multi-national corporations, select local market corporates and subsidiaries and joint ventures of Indian companies. This strategy, the bank expects, will result in improved performance of its subsidiaries.
