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Why do so many MNC banks give up pursuit of retail El Dorado in India?


(This story originally appeared in on Apr 17, 2021)

Mumbai: For decades, multinational banks have sought to tap the continent-sized Indian market. Unlike other multinational entities, banks are not able to sweep the market as authorities in India and elsewhere grant branch licences very judiciously.

Yet, over half a dozen multinational banks have pumped in billions of dollars to grow their retail business across India, only to sell them and exit in the last two decades (see graphic). It started with ANZ Grindlays, then the largest foreign bank in India. ANZ Grindlays, which was to banking what Hindustan Lever was to FMCG, sold its business to StanChart and exited the country in 2000.

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A few years later in 2007, ABN Amro, which had acquired Bank of America’s retail business in 1998, sold out to RBS following a global deal. In the last decade, Deutsche Bank, ING, RBS and HSBC sold significant portions of their retail businesses in the country. While ANZ Grindlays did take a major hit because of the securities scam, most of the others had a profitable business.

So, what is it that makes foreign banks exit after investing? According to veteran banker-turned-entrepreneur Gunit Chaddha, who started in Citibank, it is to do with the nature of the business. Chadha has had a ringside view of multinational banks in global markets as former CEO of Deutsche Bank Asia.

“In my view, unlike investment banking or capital markets which are truly global businesses, retail banking is a home market or, at best, a multi-country business. The exception being credit cards and wealth management, both of which can be global businesses. In most countries, the top 5 retail players are the local banks with multinationals playing for the number 5 to number 10 position in retail banking market share,” said Chadha, founder of APAC Financial.

Echoing this view is Amrish Rau, CEO of Pine Labs and a veteran of the credit card business. According to Rau, the concept of a massive global consumer bank is dead. “With the rise of the fintechs, banks are realising that they have to make large investments in newer technology to retain their customers. At the same time, they are under higher scrutiny and facing increased regulations while the capital available is the same. This is compelling banks to spend more in defending their business in domestic markets.”

Some foreign banks complain about the intransigence of regulators. But Chadha says that regulation has not been a factor in any of the exits so far. “India does not stand different from most other emerging markets in terms of regulations, even while degrees may vary. Most of the foreign banks operating in India have had very profitable businesses over a long period, which shows that regulations are well-balanced and supportive to global banks, as much as to local banks,” he said.



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