India, once a hub for global banks, is now witnessing these banks cutting down on their operations here. They are closing down branches, shutting down their equity capital market businesses, closing down their retail wings, and selling off their Indian operations. Among the multinational banks carrying out one or more of these cutting down tasks are HSBC, Barclays, Deutsche Bank, Bank of America-Merrill Lynch, ING, RBS and Standard Chartered. UBS, Goldman Sachs and Morgan Stanley have given up their banking licenses in the country too.
Indian Operations Not Sustainable for Global Banks
This clearly indicates a trend of India no longer being considered a priority market for these multinational banks following the financial crisis which has resulted in regulatory requirements at their home countries and high capital that has made them retreat to their domestic markets. Cost savings have become so essential to maintain profitability.
In 2015 the wealth management and retail banking division of HSBC experienced a $25 million loss though it made a profit of $4 million in the previous year. The market share of foreign banks in India is also gradually slipping. Foreign banks had a 6.55% share of advances in 2005, which dropped to 4.65% in 2010 and further declined to 4.41% in 2015.
Shift in Banking Scenario Following 2008 Financial Crisis
Bankers believe this trend is also indicative of how global banking is turning out to be. It isn’t practical or sustainable anymore. Indian bankers feel that the financial crisis of 2008 has brought about a shift in the global banking scenario with big, multinational banks having had to perform a self assessment and remodeling of their structure. With these institutions experiencing diminishing returns, they just can’t seem to justify being in India. In this age, the home country banking model is more practical and sustainable than the global banking model. Basic banking will take over.
The initial weeks of 2016 also saw the shares of some of these global banks such as Standard Chartered, Deutsche Bank, Wells Fargo and HSBC fall between 12 and 40 percent, thanks to investors posing doubts as to whether there was enough capital with these banks to support growth. So things are looking grim for these multinational banking giants in India. And local banks are ready and well equipped to take over the places vacated by them.
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