Asian Lenders Eyeing Australia Banking Market

Post by Sharat on April 14, 2009 · Under Australian Economy, Business News, banking · Comment

A number of State owned Indian banks are eyeing the Australian market as major international banks from both Europe and The US retreat back to their domestic markets or scale back lending internationally.

Three State owned Indian banks that already have an international presence (fairly rare to begin with) including Bank of Baroda, Union Bank of India and Punjab National Bank, have sought permission from the Australian Prudential Regulation for the right to establish operations in Australia.

The Indian banks themselves have rather small balance sheets compared to their international rivals that currently operate in Australia, and will not be able to completely pick up the slack left by international banks scaling back their lending activities in the country.

India has a banking system which has been barely affected by the global banking crisis, largely as a result of over regulation and protectionism, which did not allow for Indian banks to own the kind of assets which became toxic and forced huge write-downs by other banks globally, nor have international banks penetrated the Indian market markedly, picking up only 8 per cent market share.

These banks are now using the opportunity that presents itself to establish new branches in international markets to take advantage of a gap in financing that will exist as banks that were affected by the crisis pause their lending in order to mend their balance sheets.

Bank of Baroda (BoB) has applied for branch licenses in Australia and New Zealand to extend its aggressive push into the Asia Pacific.

Union Bank of India has expressed interest in applying for a branch licence after opening a representative office in Sydney last month.

The entry of Indian banks into the Australian market comes almost a year after China’s largest bank the Industrial and Commercial Bank of China (ICBC) was given permission by the regulator to open a branch.

There is some speculation that Chinese banks will do the same as their Indian counterparts with a number of them believed to be thinking about seeking permission to open branches and take advantage of the opportunity of obtaining market share left by international banks as they leave.

BoB, is building a global retail and institutional distribution network and already has branches in Singapore, Hong Kong and Fiji. Chief representative in Australia, Satish Vermani, told BusinessDaily that the bank wanted to offer retail and wholesale banking services to local and Indian clients. He confirmed the bank had recently applied for a local branch licence.

“It will take some time for us to go through the process with the regulator,” “The initial target group of Bank of Baroda will be the large non-resident Indian population in Australia which we estimate to be more than 150,000.” Mr Vermani said.

Mr. Vermani also said that that the bank wanted to take advantage of the rapid growth in trade between India and Australia and the banking opportunities such a relationship would present. Data from the Department of Foreign Affairs And Trade suggests that India is the seventh largest trading partner of Australia, with Australian exports valued at $10 billion or 5 per cent of the total.

BoB’s Vermani says that the lender does not just want to be involved in trade financing or the funding of Indian corporates, but the bank is keen in participating in the domestic syndicated loan market

“We are not only looking to lend to Indian companies operating in Australia, but we will be participating in the syndication of loans for local corporates. We are interested in lending to fund new mining and infrastructure projects.” Mr. Vermani said

BoB and Union Bank of India were both partly floated on the Indian exchange, but remain majority-owned by the Indian Government.

If APRA approves the BoB application, it would become only the second Indian bank with a licence to operate in Australia. India’s largest commercial bank, the State Bank of India, opened its branch operation in April 2004 and has emerged this year as a leader in the fixed-term deposit market.

Another relatively large Indian State owned lender, the Punjab National Bank (PNB), is believed to have approached APRA earlier this year about opening a representative office in Sydney.

PNB is India’s third-largest bank with a total asset base of more than $US50 billion and has recently established branches in China, Hong Kong, Singapore and the United Arab Emirates.

Australian Bank Accounts Compared