India’s public sector banks target increased African presence

Yet bankers doubt India’s capacity for a large exposure in fundings for mergers and acquisitions which is enjoyed by global banks.

Following the government’s push to increase trade between India and African countries and the growing investments by Indian companies in the African continent, public sector banks are scaling up their presence in African countries by opening new branches and subsidiaries.

State Bank of India (SBI) plans to open four new branches in South Africa. The bank already has four branches in that country, including those in Durban and Cape Town. SBI's business in South Africa was mostly corporate-driven till now. However, the bank is gradually getting into the retail segment as well, said an SBI official. SBI also plans to open a subsidiary in Botswana. Currently, the bank is present in Nigeria, through its stake in Sterling Bank.

Usually, banks take the subsidiary route to scale up their presence, since local banking regulators prefer this model, as it offers easy supervising operations and an easier method to evaluate risks. If banks use the branch route, the banking regulator would have to monitor the entire bank, which is a tough task for a regulator in a small country with limited means.

The current expansion plans of banks can be seen as the second wave of banks increasing their presence in Africa. Bank of India and Bank of Baroda had established their presence in Africa in the middle of the last century to serve the Indian trading community and migrant workers. However, the focus now would be to expand and cater to Indian companies investing in mineral, energy resources and infrastructure in Africa. And this time, the scale is different, with large mergers and acquisitions and green-field investments being the flavour of the day. Bharati Enterprises' $9-billion acquisition in African telecom player Zain can be cited as an example.

However, an important question is whether Indian banks would be able to provide adequate financial support. A senior official with Export-Import Bank of India said Indian banks lack the scale for a large exposure in fundings for mergers and acquisitions. Global banks, which enjoy large balance sheets, are likely to play the leading role.

A Bank of Baroda official said when it came to arranging funds, the absence of a branch network was not a concern. With a strong presence in international finance, Indian banks could raise funds through bonds to finance Indian companies, he said.

View the full story in Business Standard.