Indian PSBs plan to exit Hong Kong as strict regulations, Covid woes pinch

Amid strict rules, losses on trade financing business, and Covid regulations, Public Sector Banks (PSBs), such as Union Bank of India and Punjab National Bank, are slowly moving out of Hong Kong. 

Once a premier global financing hub, now, Hong Kong has seen the exit of four PSBs, some of which are in the final stages of shut down, out of 8 public sector banks while others are contemplating the future of their operations after the Coronavirus pandemic. According to a report in The Economic Times, State Bank of India (SBI) will likely be the only PSB in Hong Kong, alongside private sector banks ICICI and HDFC. 

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Union Bank of India (UBI) has already transferred its client accounts to Singapore and Australian branches and is waiting for the last no-dues certificate from the Hong Kong Monetary Authority.

"We have stopped doing any new transactions and have already moved accounts. We expect the final clearance within the next couple of months," said a person aware of the UBI's plans, quoted by ET.

PSBs are leaving Hong Kong as many reasons have come to the foreground after Covid, such as tougher regulations after China's full control of the city, while others include quarantine rules, and lockdowns, a senior banker told the financial daily. 

The banker added, "The Chinese authorities are also not easy to deal with, especially in the current geopolitics of the region. But the main reason is the weak trade financing business as flows have been routed through Shanghai." 

"Many Indian banks made big losses due to the Covid-linked economic meltdown in 2020 as traders could not pay up and there is also a thinking that so many banks are not required there now," the Economic Times quoted the banker. 

The Punjab National Bank has also started a pull-out plan while Canara Bank's plan to shut down its operations are in advanced stages. Bank of Baroda has already shut down its branch in the city. 

Meanwhile, Indian Overseas Bank (IOB) is still scrutinising the future of its Hong Kong branch, its CEO PP Sengupta told the newspaper. 

IOB, UCO Bank and Bank of India have been put under the Reserve Bank of India's prompt corrective action framework, after which Hong Kong Monetary Authority also curbed their lending. While those restrictions are now off, these banks are now also contemplating their future in Hong Kong. 

The exodus of PSBs is in line with the government's 2016-17direction that asked the banks, in an attempt to conserve capital, to ensure only one or two banks operate in these markets.