A well-spread overseas network and the ability to provide complex financial solutions to corporates have helped foreign banks to steal a march over Indian banks.
The flow of business opportunities from Indian corporates to domestic banks was marginal, with just a handful availing of significant finance in the domestic market.
Almost all of HSBC India's net profit in 2006-07 came from its corporate and treasury businesses. Other foreign banks too have made huge gains from the booming corporate sector.
HSBC India's net profit in 2006-07 rose by 64 per cent to Rs 846 crore (Rs 8.46 billion), Standard Chartered India's 51 per cent to Rs 1,364 crore (RS 13.64 billion) and Citibank's by 27.5 per cent to Rs 900 crore (Rs 9 billion).
In the case of Citibank, revenues came equally from retail and non-retail businesses, with non-retail accounting for 70 per cent of the net profit. This is true with most foreign banks offering retail and corporate services in India.
Indian companies mobilised over $25 billion of debt overseas in 2006-07, over 90 per cent of which was arranged by foreign banks. It's not just overseas fund raising where foreign banks have an edge over Indian banks, but also in transaction services - both cross-border and within the country.
HSBC India CEO, Naina Lal Kidwai, attributes the success to the bank's global reach: "Cashing in on our global network, we have been able to build a strong transaction business and have been able to handle Indian corporate requirements. This has lead to a strong profit growth," she said.
A senior public sector bank official said, "This is exactly why the Reserve Bank of India has not allowed foreign banks a greater play. Indian banks will be swamped if foreign banks, with their might, are freed of curbs on expansion in the country."
The RBI had set for foreign banks a roadmap, which envisages a review of current policies in 2009. But there is unlikely to be any change in the RBI stance from what it is now.
The principal pre-requisites for allowing a greater presence for foreign banks depends on the consolidation in banking space which would have provided the much-needed size for a few banks to withstand competition from foreign banks. There have been no significant mergers and acquisitions, particularly among government-owned banks.
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