Following the Reserve Bank of India (RBI)'s ban on letters of undertaking (LoU), Kolkata-based UCO Bank is planning to merge its two branches in Hong Kong. The country has the second highest number of foreign branches by Indian banks after the UK.
“The ban on LoUs has impacted the business of foreign branches, and we definitely think one branch in Hong Kong is enough to cater the needs of the region," R K Takkar, MD and CEO, UCO Bank, told Business Standard.
Financing through LoUs and buyers credit has been a mainstay for most Indian banks in Hong Kong, accounting for close to 50 per cent of their business. But now, they are now being forced to realign operations involving trade financing the Indian diaspora.
Indian banks have about 17 branches in Hong Kong. Banks with two branches include, Bank of India, Punjab National Bank, Indian Overseas Bank and ICICI Bank, apart from UCO Bank. With almost zero capital required for opening a branch in Hong Kong, Indian banks so long have been upbeat in opening branches in the country.
Earlier this month, financial services secretary Rajeev Kumar tweeted that public sectors banks (PSBs) will consolidate 35 overseas operations without affecting the international presence of PSBs in these countries. Further, 69 operations have been identified for further examination, he added. This include, bank branches, joint ventures, subsidiaries, remittance centres and representative offices. The proposal also include consolidation of operations of bank branches in the same geography.
While the UK has highest number of Indian bank branches at 32, followed by Hong Kong with 17 branches, and Singapore with 11 branches.
“Although LoUs accounted for 50 per cent of bank’s overseas business, they only accounted for 25 per cent of their income, as margins were very low. Now, definitely the business from foreign operations will shrink, but at the same time, the profits will increase. In Hong Kong, we will now focus on trade finance to Indians settled there, as traditionally Indian banks have not been financing local Chinese population,” said an official Allahabad Bank, which has one branch in Hong Kong.
As on January 2018, Indian banks had about 185 full-fledged foreign branches, with State Bank of India having the highest number at 52, followed by Bank of Baroda with 50. Including subsidiaries, representative offices, joint ventures and other offices, Indian banks have about 302 operations abroad.