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India commits banking to reach the rural poor
24-02-2010
ATI December 2009
SYDNEY India's banking industry is committed to the mammoth task of bringing banking to some 50 per cent of its 1.13 billion population, currently without access to banking services. Indian banks will harness the latest technology to reach out to those living in rural India, says Mavila Nair, Chairman of the Indian Banks Association.
"We have a target to reach all villages with 2,000 people," said Nair, who was in Sydney in December to open a representative office for his own bank, the Union Bank of India.
Nair said banks will use mobile technology, biometric smart card technology and unique identification (the national identity card) to allow rural customers to tap into banking networks. The actual banking itself would also be outsourced to local businesses, such as village grocery stores.
"The entire banking industry has taken the responsibility to complete this task in four to five years. The issue for us (and India) is that the industry must reach out to aspiring young people who want to enjoy and be part of the country's growth," Nair told ATI.
He says the industry is poised for exponential growth of at least 20 per cent annually over the next 20 years as India's economy continues its rapid growth. The Indian banking industry has been growing at a compound rate of 28 per cent over the past four years.
Nair says growth slowed this year because first real estate was affected and then trade slowed in the wake of the global financial crisis. Domestically, however, Indians banks remain strong without problems, as they have no exposure to sub-prime.
The worst is over and growth is gaining momentum, he says. In the last two quarters, GDP growth was 6.1 and 7.9 per cent respectively. Growth this year will be around 6.7 per cent down from 8.8 per cent in the four years before the global crisis, he says.
Union Bank, of which Nair is Chairman and Managing Director, grew by 33 per cent last year. This growth was propelled by its own transformation, using technology to change some processes, such as bringing in short-term loans on time, and quicker turnaround time for other loans.
He plans to open 300 new UBI branches to add to the current 2,750 next year. "Our growth has been organic, but we may start to look for acquisitions," he says, adding that, as the market is dominated by public sector banks, acquisitions are not easy.
Public sector banks, including Union Bank, control 70 per cent of the market, with private banks having 20 per cent, and foreign banks (HSBC, Citigroup and Standard Chartered) around eight per cent. The balance is in local community and co-operative banks.
Nair says the Indian banking industry is virtually unregulated now, and restrictions on the insurance sector will ease when a new Bill passes through Indias Parliament. It will allow foreign ownership of up to 49 per cent in Indian insurance companies.
Union Bank, which is 45 per cent publicly owned, has a market capitalisation of USD$3.3 billion, and an asset book of US$35 billion. "We have been profitable in the last two years, delivering returns on equity of 25 per cent and returns on assets of 1.25 per cent," Nair says.
Two years ago, Union Bank started to venture overseas and is now in a hurry to establish its offshore presence. It has established a full branch in Hong Kong, and has set up representative offices in Shanghai, Beijing, Singapore and Abu Dhabi. Sydney is the fifth location.
Nair says necessary approvals have been obtained to establish a presence in London and in Johannesburg in South Africa. Belgium and Canada will follow.
"We decided to focus on four key regions for our offshore growth. The regions that he has chosen are East Asia, Australia, the Gulf Co-operation Council and Africa. "We chose these geographies for their growth potential."He adds that the bank also brings along its own capability in financing agricultural activities and small to medium-sized business.
Three other Indian banks Bank of Baroda, the State Bank of India and Bank of India have operated overseas branches for at least two decades. Nair says that in the case of Bank of Baroda, offshore business makes up at least 20 per cent of its revenue. He, too, aspires to achieve a 20 per cent contribution from overseas businesses in the next 20 years.
As it steps into the offshore market, Union Bank will also soon issue its first medium-term notes to raise $US500 million in Europe, primarily to fund its Hong Kong branch. |
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