Indian banks with international operations appear to be relatively better off lending to companies in their home market than in overseas markets. The decline in their foreign loan portfolio suggests that they have embarked on this path.
The foreign loan books of banks such as the State Bank of India (SBI), Bank of Baroda (BoB) and ICICI Bank contracted to varying degrees in FY21. It did so amid global central banks flooding financial markets with liquidity to support their respective economies in the wake of the Covid-19 pandemic.
Ensures there is no room for accidents in the company’s loan book: Sanjiv Chadha, MD & CEO, Bank of Baroda
At the end of March 2021, SBI’s foreign loan book fell slightly (0.13 percent year-on-year / year) to 3.56,877 billion; BoB’s portfolio shrank 13 percent year-over-year to 1.10.514 billion yen and ICICI Bank’s portfolio shrank 30 percent year-over-year to 37.590 billion yen.
The Bank of India’s foreign loan book declined 3 percent year-to-date to 1.27.686 billion yen at the end of December 2020.
3 reasons why market liquidity will remain robust in 2021
What BoB will focus on
Sanjiv Chadha, MD & CEO, BoB, said, “I think our international business has two parts. Some international operations are going very well. For example, we have our subsidiaries in Kenya and Uganda, which give us a return of 15-20 percent every year. They are top notch in terms of performance. ”
However, the overseas wholesale business was just as affected as it was in India.
“This business has suffered margins in India as the central bank injected liquidity to support the economy. And the liquidity that was being brought into international markets was even higher.
“The Fed and other global central banks have access to much larger pools of liquidity. As a result, the Libor fell to close to zero. This means that the wholesale book is not delivering the kind of return that it might have been two years ago, ”said Chadha.
Hence, BoB will focus on growing overseas subsidiaries where return on equity is high and in regions where returns are good.
Movement of capital
The BoB boss noted that with large loans it is possible to move capital from international businesses to India and make more money.
“The Fed has been the most liberal when it comes to liquidity. That’s why interest rates have fallen. For example, it is possible to reduce the size of our book in the US and bring that growth to India and get a higher return on investment and better margins, ”he said.