Banking in India

Banking in India

Oct 15th 2020

The peer groups comprised 8 senior treasurers from Asia, Europe and the Middle East comparing their experiences with banking in the country.

Banks mentioned in this report are: Citi, HSBC, JP Morgan.

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Here is expert chair Damian Glendinning’s commentary

More on India

Chairman’s commentary

Another encouraging session on India. The country used to be hostile to foreign business and extremely challenging. It was highly unusual to find a foreign company which made profits, and the red tape was stifling. Now, several participants in the call had profitable local operations, and all were able to satisfy the majority, if not all, of their needs using international banks. Of the international banks, HSBC, JPMorgan (JPM) and Citi were mentioned the most, with JPM receiving the most positive mentions. The American banks have apparently intensified both price and solution competition. JPM, in particular, have a ‘virtual branch’ product under which they interface with the local banks where required, so the MNC only has to deal with them. This can be very helpful, for example, when dealing with requirements to make payments out of local bank accounts.

Most participants make relatively little use of local banks, but there was a general consensus that the local banks do provide intense competition and are quite capable. As such, they play an important role in improving the quality and pricing of services.

Of course, India is still home to a lot of rules and regulations, and some of the rules cause specific problems. One is a recent rule which says a company can only work with a bank for transaction services if that bank is providing credit. It was not entirely clear how this works, but some participants found that setting up an uncommitted facility met the requirements. Equally, problems are often encountered with cross border payments being delayed due to the large amount of paperwork required. However, under the regulations, all cross border invoices must be settled within 180 days.

Bank guarantees were discussed a lot. As they are used to cover customs deposits and legal disputes which can carry on for many years, they can introduce significant inertia into banking relationships

No-one reported issues in obtaining credit. Even the international banks seem to have plenty available. There is also widespread use of FXall, though the lingering requirements for FX documentation still present challenges. One participant has framework agreements which allow forwards to be moved between banks for settlement.

Generally, there was no discussion about either domestic or cross border cash pooling, as India does not allow intercompany loans between different legal entities.

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