National Bank of Abu Dhabi (NBAD) has been granted a banking licence in India, the first for an Emirates lender in the South Asian nation in 34 years.
NBAD’s foray into India is no surprise as it comes on the heels of the bank’s announcement last year that it plans to build eight hubs in a West-East geographical corridor of emerging markets spanning cities that include Mumbai to tap intercontinental trade flows valued at US$137 billion.
It is expected that NBAD will begin operations in India by the end of the year, a source said.
Details of the cost and duration of the licence were still not clear, although it would allow NBAD to engage in all banking activities, according to the source.
The most recent UAE banks to win licences in India were Abu Dhabi Commercial Bank and Mashreq, but that was back in 1980.
An Indian bank is expected to be allowed to set up in the UAE in return, with State Bank of India a front runner, Bloomberg News reported.
Spokespeople from NBAD and Reserve Bank of India were not immediately available for comment.
“It is likely to be a relatively small operation to start with,” said Shabbir Malik, a Dubai-based banking analyst at the Egyptian investment bank EFG-Hermes. “Although India is a big market it will initially have a small impact on the bank’s profitability. The operations will be mainly corporate-focused and not retail.”
“The move is part of the bank’s strategy to expand their wholesale networks across the West-East corridor. Management has been saying that they want the bank to be in a position to take advantage of the investment and trade flows that occur between the megacities situated within that corridor.”
Alex Thursby, appointed as the bank’s chief executive last July, said its new five-year plan included setting up centres in Abu Dhabi, Lagos, Washington, Mumbai, Singapore, Hong Kong, London and Paris. The bank has also said that it wants to build retail banking networks in a select number of emerging markets.
NBAD, like a number of other banks in the UAE, has been setting its sights on expansion outside the country, where competition among the more than 50 banks serving a population of 9 million is becoming tougher. The hunt for retail banking customers has intensified in the past few years because the margins on loans to individuals are higher than those to companies.
An improvement in the economy amid low interest rates has boosted the appetite among consumers to take loans for homes, cars and other big ticket item purchases.
But as well as building up its operations outside of the UAE, NBAD – which has only the fifth largest retail banking network here – wants to focus more on generating fees in other parts of its business, such as foreign exchange and trade finance as well as capturing trade flows. That is because the profit margins it is making on lending to customers in the Emirates are compressing as interest rates continue to inch lower.
The rate at which banks lend to each other, and which is used as a benchmark in setting borrowing costs, is hovering at lows of at least eight years.
NBAD’s entry into India comes at an opportune moment. The prospect of the prime minister-designate Narendra Modi leading India’s most stable government in three decades has prompted economists to raise growth forecasts in the world’s second-most populous nation.
Morgan Stanley, Citigroup and Nomura Holdings anticipate faster expansion in the next few years on Mr Modi’s plans to attract investment and build more ports, roads and bridges. GDP will expand at a four-year high of 6.5 per cent in the year through March 2016, Morgan Stanley predicts, compared with a previous estimate of 6.2 per cent.
mkassem@thenational.ae
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