Sucheta Dalal :Public sector banks foray into new domains
Sucheta Dalal

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Public sector banks foray into new domains  

September 29, 2009


Gone are the days when public sector banks (PSBs) in India were just about dull, cramped office spaces. In the past one decade, PSBs in India have come a long way, competing in arenas which were earlier the domain of private and foreign banks in India. PSBs are now active in retail fee income, money transfers and online trading—among other activities. An important stronghold of foreign banks was ship finance. This area too is now witnessing entry of PSBs.
Before the global meltdown, foreign banks were the main source of loans for shipping companies in India. Today, domestic banks are being considered for ship finance by major shipping companies in India like the Shipping Corporation of India (SCI) and Essar Shipping. “The liquidity in India is far more reassuring and available rather than offshore banks at present,” said V Ashok, director, Essar Shipping Ports and Logistics Ltd.
Bank of India, one of the major PSBs in India, has also reported an increase in the number of shipping companies approaching it for loans in the past two years. “We have financed two new shipping companies last year. Given the number of shipping companies in India, two new companies is a good addition,” said V Rajaraman, general manager, large corporate (credit), Bank of India.
“Availability of foreign exchange, loss of appetite by foreign banks, durability of relationship and the confidence that PSBs offer are the main reasons,” Rajaraman added.
Except SBI Capital Markets, the investment subsidiary of the State Bank of India, investment banking in India has been strongly dominated by private and foreign banks like Citigroup, Morgan Stanley, Merrill Lynch,and Deutsche Bank. However, in the past few years PSBs like Punjab National Bank (PNB) and Union Bank are also entering this new domain. Union Bank announced plans in 2008 and PNB announced plans in September 2009.
“One reason why PSBs could enter investment banking is because a lot of times, government companies want to have some PSBs among their bankers. This would help them get an additional fee and also expand their portfolio as they can participate in mergers and acquisitions, both overseas and domestic,” said Gautam Mehta, analyst, KRChoksey Shares and Securities Ltd.
Loan syndication is another arena where PSBs are making their presence strongly felt. Earlier, dominated by SBI Capital Markets, IDBI Bank and Axis Bank, the loan syndication business has witnessed entrants like Allahabad Bank, Bank of India, and Corporation Bank. Union Bank is also planning to foray into syndication, with the setting up of a syndication team already in process. Corporation Bank has recently set up a syndication desk.
“PSBs will do a lot in the loan syndication sector as it involves large amount of loans. Loan syndication is generally done for large projects like power and infrastructure. With the government supporting infrastructure through private- public partnership, PSU banks have room to grow,” added Mehta.
K Unnikrishnan, deputy chief executive, Indian Banks’ Association, attributes the transformation in PSU banking in India to the financial improvement of these banks since 2003. “After the slump of the mid-1990s, the non-performing asset levels for PSBs went up. The government had to pump in a lot of capital to keep them afloat. At the turn of the century, all the PSU banks had consolidated their financial position. In the last six years, their financial position has improved tremendously. Earlier, if they wanted funds, the Reserve Bank of India (RBI) would have refused on the grounds of low capital adequacy ratio. Now that their capital adequacy is quite comfortable, they are in a better position to look for expansion. India’s trade and exports have increased in the past six-seven years which need to be supported by strong, large banks,” said Unnikrishnan. - Amritha Pillay

-- Sucheta Dalal