Local lenders find favour with MNCs

The global financial crisis seems to have changed the way multinational companies operating in the country engage with Indian banks. Post the crisis, their involvement with large Indian public and private sector banks has grown for a range of services, such as cash management and credit, according to bankers.

Multinational companies operating in India and other emerging markets may be looking beyond global banks and are increasingly keen to partner with strong local lenders, bankers say.

A top executive with a Mumbai-based public sector financial institution said after the collapse of Lehman Brothers in September 2008, access to credit from foreign banks almost dried up. This, he said, prompted global companies to spread risk and appoint Indian banks as lead bankers.

"MNCs are coming to us saying they want a strong local partner to bank with rather than a foreign partner," Rakshit Kundha B J, head (trade products), ICICI Bank, said while addressing a seminar on trade finance organised by Euromoney.

The global financial crisis has prompted these companies to revisit their approach. With mounting problems back home, foreign banks have either gone slow on lending or may pull out from other markets, forcing customers to look for options.

According to RBI data, the year-on-year growth in advances by foreign banks dropped to 4 per cent in 2008-09 as against 28 per cent in the previous year. Private banks also saw a moderation in year-on-year credit growth, from 20 per cent to 11 per cent, but not to the extent as foreign banks. In contrast, advances by public sector banks grew by 20.4 per cent in the same period compared with 22.5 per cent in the previous year.

There is also the matter of state ownership of some banks in developed countries, including the US, the UK and Germany. Many banks were on the brink of collapse due to mounting losses and write-downs in the aftermath of the meltdown.

Governments, as part of their bailout packages, picked up stakes in these ailing banks and put conditions that the lenders concentrate on local markets. Naturally, overseas business plans for such banks will take a backseat, according to industry sources.

A senior executive with a foreign bank said this trend was visible not just in India but in other emerging markets, such as China as well. "Domestic banks have a much wider presence and are able to raise money through deposits at a cheaper rate. They can thus offer finance at more attractive rates," he said.

In cases where international companies wanted to enter the large rural market of India, association with a domestic bank was crucial for operations, especially cash management, said an official of a public sector bank.

A senior State Bank of India official said while the financial meltdown might have given a push to the trend, improvement in services on the core banking platform and a large branch network had already drawn multinational companies to Indian banks.

Another private bank official said that Indian banks, on their part, were not jumping to scale up lending to MNCs. "If anything, it would be a gradual process as they would like to see their track records. First, the focus will be on non-fund services and increasing liabilities (raising deposits from multinationals)," he added.