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September 25, 2003 
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Corporate banking in India might well be worth banking on !!

Public sector banks in India remain dominant, accounting for nearly 79% of business, while the share of private banks is about 14% at present. Foreign banks, on the other hand, have actually seen their share decline to 7%.
Our Say

As the domestic banking landscape gets increasingly competitive, a number of foreign banks that have been fringe players will get further marginalized and may ultimately be forced out of the country. And while big multinational banks will have the most visibility due to their strong retail presence. Banks in the less sexy area of corporate banking, but with a clear focus, will continue to rake in the moolah.

 

All the large foreign banks in India have made clear that they are keen in acquiring Indian banks to expand their presence in the country. But though the centre has raised the ceiling on FDI in the banking sector to 74% from 49% earlier, none of the foreign banks have moved ahead with their acquisition plans yet; as the contentious issue of the 10% cap on voting rights still remains unresolved.

Foreign banks have been given  the option of converting

their branch operations in the country into subsidiaries; but while it offers them more flexibility in terms of branch expansion, the disadvantages far outweigh the benefits. While the branch operations of a foreign bank remit profits to the head office, a subsidiary would have to pay dividend attracting dividend tax. Also, while foreign banks presently have a priority sector lending requirement of 32% of advances, this would increase to 49% once they convert into subsidiaries.
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