Former RBI governor YV Reddy had once grieved about global financial conglomerates being larger and more powerful than some of the central banks.
However, in today’s scenario, this is not the exact case since these financial conglomerates are no longer on their way of overpowering India’s central bank. While it’s true that these global banks have enjoyed huge profits in India over the last 15 years, one can’t deny the fact that the market share of these banks is slowly sliding downwards.
In 2005, foreign banks' share of advances was 6.55%, which dropped to 4.65% in 2010 and to 4.41% in 2015. It was in January that the UK-based Barclays shut down its equity capital market and broking business in India, after a continuous trend of full or part exit of foreign banks since 2009.
A look at the business trends of these global firms in India in the last five years tells us that Deutsche Bank has sold its credit card business, Barclays has shut its retail banking business, Swiss lender UBS and US-based Morgan Stanley and Goldman Sachs have given up their banking licences, Bank of America-Merrill Lynch have sold its wealth management business to Julius Baer and Dutch banking group ING has sold its Indian operations to India-based Kotak Mahindra Bank.
Last year too saw Royal Bank of Scotland, which had in 2013 shut 23 of its 31 branches in India, commenting that it will no longer continue its Indian operations. Similarly, HSBC said that it will shut down its private banking business in India.
Now that it is clear that all these global firms are following what can be called a trend, let’s have a look at the reason. Indian economy is growing fast, which has forced multinational foreign banks to retreat into their domestic markets and protect their profitability. As per industry experts, it also means that global banking is near its demise.
"Big is not beautiful anymore in banking. People can tell me whatever they want but this global, anywhere, anytime model for banking is not possible or valuable anymore," Boris Collardi, CEO at Swiss private bank Julius Baer, told ET in an interview. Collardi added that Julius Baer had seen the signs of this change early, which is why it shed its asset management and corporate investment bank businesses, so that it can solely focus on wealth management in the last 15 years.
"There has been a tectonic shift in global banking post the crisis. Big, bulge-bracket banks have had to remodel themselves. The diminishing return of large global banks does not justify their presence in India. The banking model has changed to a home country one," Rana Kapoor, MD at Yes Bank, said.
Not only this, Indian private sector banks are now being valued higher than their global counterparts, an example of which is HDFC Bank, which overtook European banks like Deutsche, Credit Suisse and Societe Generale in market capitalisation this year.
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