Foreign banks play a very critical role in nation-building: Experts

Foreign banks in India play to global strengths, channel foreign capital, and dominate FX and cross-border finance, complementing domestic banks in a highly competitive market

Foreign banks operating in India tend to stick to their strengths in a competitive market. At the Business Standard BFSI Insight Summit 2025, K Balasubramanian, India subcontinent sub-cluster and banking head of Citi; Hitendra Dave, India CEO of HSBC; and PD Singh, India CEO of Standard Chartered Bank speak to Manojit Saha about how they serve the interests of the economy. Edited excerpts:

 

Why do you think foreign banks choose to operate in particular segments in this country? 

K BALASUBRAMANIAN: I think banking is a very important industry from a country’s perspective because, typically, if financing is available for a country, it accelerates the velocity of growth. It is a highly lucrative business, but it is also highly nuanced. Banks need to create a niche for themselves, develop their core competencies, and play to the best of their abilities. When we think about the presence of foreign banks in the country, they are very important because, first, they bring globality to the market. The networks they have across different countries have help further accelerate the country’s growth prospects. They bring in best practices from different parts of the world, and introduce product sophistication and specialisation into the market. For a country like India, where domestic savings are not sufficient to support the country’s aggressive growth ambitions — and where the government has articulated the goal of becoming Viksit Bharat by 2047 — there is a clear need for foreign capital. Collectively, we have significant experience in accessing global pools of capital that can be brought into the country. 

HITENDRA DAVE: Any business, brand, or franchise understands the areas where it can do justice to its customers and provide value addition. I do not think foreign banks, as a group, came together and decided whether they would operate in a niche or not. In fact, we mostly end up competing with each other, rather than collaborating. When you look at why you exist, if you are a global bank, you exist because of your globality. That globality is not always visible to many people in terms of how it helps Indians. For instance, if you are a student wanting to go abroad to study, global banks are your natural default. If you want to make acquisitions outside India — although acquisition financing has been opened up only recently — if you ask any of the 200, 300, or 400 companies that have made acquisitions, you will find that global banks have supported those transactions. I would also add that in certain segments where international banks were dominant about 25 years ago, such as credit cards, and wealth management, credit must be given to domestic banks. Local private banks, and some of the better-performing public sector banks brought the level of competitive intensity so high that international banks were perhaps edged out to some extent. 

PD SINGH: Electronic banking first came to India through foreign banks. The first ATM, the first credit card, the first letter of credit (LC), the first bank guarantee, the way international trade was conducted, and the management of the associated risks — all of these were introduced through foreign banks. When we fast-forward to more recent developments, whether it is dollar clearing in Gift City, or advising the Government of India on sovereign ratings, much of this has been catalysed by foreign banks. I would, therefore, say that foreign banks play a very critical role in nation-building and have continued to do so. 

Even today, if you look at their contribution, depending on how one defines a niche, around 40 per cent of India’s foreign exchange (FX) trades are conducted by foreign banks. A similar proportion of FX hedging is also handled by foreign banks. That is how foreign banks have positioned themselves. Not necessarily as operating in a niche, as you mentioned, but as enablers of global finance. 

 

Going forward, will foreign banks look to compete with domestic banks to serve retail customers? 

SINGH: The Indian banking sector is vast and extensive, and therefore, playing to your strengths is very important. There is no point in trying to compete with the State Bank of India in a particular city. However, if your key customers are located in 30-40 cities across the country, it is critical for you to be present in those cities. 

DAVE: I do not think it is a matter of not wanting to be in retail. Whether it is corporate banking, capital markets, wealth management, or — as Indians become wealthier and increasingly choose to invest outside India — a natural market will emerge for banks like ours. However, if the opportunity is purely domestic, we know that India is an extremely competitive market. In such cases, banks like ours may conclude that there are better players to serve certain customer needs. 

 

The cost structures of foreign banks operating in India are heavily weighted towards costs allocated from their global headquarters. Does this hamper their ability to price products competitively? 

DAVE: Allocated costs mean that there are direct costs such as salaries, rentals, interest paid on deposits, and administrative expenses. People engage with us not only because of the work we do in India, but also because of the brand halo, the governance structures, and the goodwill that is transferred from our global operations. There is also technology. We do not build our banking systems locally; these are common, global banking systems. Quite honestly, my sense is that if we had to do everything locally, our cost structure might actually be slightly higher, because the scale here may not be sufficient to absorb the full cost of all those systems on a standalone basis. 

BALASUBRAMANIAN: You cannot recreate everything across the different markets in which we operate. Therefore, some level of allocated cost is inevitable. The right way to look at this, however, is to consider both allocated costs and direct costs together, and assess our overall cost structure. The key question, then, is whether we are competitive with other banks operating in the country. If you look at it through that lens, I can say that foreign banks are very efficient.