Indian Banks Abroad

List of subsidiaries of Indian Banks abroad as on November 30, 2007

Name of the Bank Name of the Centre

SBI (Canada) Ltd. Toronto Vancouver, Mississauga
SBI (California) Ltd. Los Angeles, Artesia, San Jose (Silicon Valley)
SBI Finance Inc. Delaware U.S.A.
SBI International (Mauritius) (Off-shore Bank)Mauritius
Bank of Baroda Uganda) Ltd. Uganda
Bank of Baroda(Kenya) Ltd. Kenya
Bank of Baroda (U.K.) Nominee London, UK
Ltd.
BOB (Hong Kong)Ltd. (Converted into Restricted Licensed Bank) Hong Kong
Bank of India Finance(Kenya) Kenya
Ltd.
IOB Properties Pte Ltd. Singapore
Bank of Baroda(Botswana) Ltd. Gaborone Botswana
Bank of Baroda(Guyana)Inc. Georgetown Guyana (South America)
ICICI Bank UK Ltd London (UK)
ICICI Bank Canada Ltd Toronto (Canada)
ICICI Bank Eurasia LLC Russia
PT Bank Indomonex Indonesia
Bank of Baroda (Tanzania) Tanzania
Foreign Banks in India
 International Banking Operations

International banking operations are essentially to facilitate the movement of

goods across the political boundary of countries. Banking system came along with the
development of money as an institution. As civilization narrowed down the social distances
and mankind learned about the benefits of exchanging commodities across political
boundaries, the present-day international trade developed. The transaction of commodities
across countries required financial intermediation in the international level and thus
international banking business was born. What started with movement of gold and silver
across country-borders became ultimately an efficient institution of international transfer of
not only yellow metal but the currencies of sovereign countries. In this way the emergence
and growth of international banking is closely interwoven with the development of
international trade and international capital movement.

The above gives the general perspective of the growth of international

banking. But there are many aspects of this development. From a historical standpoint, the
recent growth of international banking can be regarded as a reversion to the situation before
World War I when European banks dominated the world capital market. During the period
1940-1960 regulatory control on capital flow and convertibility of the currencies reduced
the importance of international banking. From 1960 onwards globalization of capital
market started and the emergence of surplus in petro-dollars in the seventies gave the much
needed liquidity to the international banking business. The latter has been characterized by
an increasing turnover in international trade, a phenomenal increase in the international
flow of capital and also an increasing flow of funds from the banks to non-bank sectors. To
understand the causative factors properly the literature has attempted to identify the factors
supporting the internationalization of banking business. Thus factors like non-financial
multinational corporations, the proximity to customers abroad, the competitive advantage
with better information technology and the benefits due to international diversification have
been mentioned in the literature in the contexts when these become relevant (Nandi , 1996).
These factors along with other forces of globalization have established the huge
international financial architecture which rule the international financial market today. The
theoretical studies mentioning the factors helping the expansion of international banking
are important, but in today's scenario the major business of international banks is based on
international trade , international transfer of capital and money and derivatives.
The literature abounds in the exploration of the causative link in the
development of international banking, but not many studies are found testing the theory
empirically. There have been several studies which attempt to measure empirically the role
of the different factors behind the growth of the US banks in the international fields (Nandi,
1996).
 Determinants of International Banking Activity

In today's world no country can afford to be autarkic either in the field of

international trade or in international banking. But the latter is subject to much more
restrictions in almost all the countries compared to the former. What determines the growth
of international banks in the domestic banking sector of a particular country?
Analytically we can proceed as follows:

Since international trade is closely related to international banking, volume of

international trade (imports and exports together) is a determinant of the growth of
international banking and the relationship is direct. Assuming that no specific restrictions
are imposed on the operation of foreign banks so far as their operations are concerned in
international banking vis-à-vis the practice of international banking done by home
country's banks, it can be said that an increase in the turnover of international trade should
have positive impact on the growth of international banking. Alternatively, the ratio of
export to gross domestic product can be taken as the explanatory variable. This alternative
formulation can be tested.
Foreign direct investment has been cited as an important determinant for the
expansion of international banking. In fact, the presence of international banks facilitates the
inflow of foreign capital and it is expected that the increase in foreign direct investment
should have a positive impact on the growth of international banking.

Banking service as a commodity is supposed to have positive income

elasticity. As national income is growing, demand for banking service should increase. To
what extent the increase in income will help the growth of foreign banking activity in
domestic soil depends on the preference of the consumers and also the participation of the
foreign banks in the trade, both domestic and international, of the host country. If we take
per capita income as the explanatory variable for the growth of international banking
activity, then the growth of per capita income may facilitate the growth of international
banking in the host country on the assumption that foreign banks have complementary role
in the domestic banking structure.

The growth of domestic deposit should have influence on the activity of

foreign banks. But in many countries the foreign banks are not allowed to create a domestic
deposit base, though this facility is crucial for the increase in business. Foreign banks often
face difficulties in the creation of domestic deposit base even when it is allowed, as the cost
of the maintenance of deposits may be too high compared to business. Many foreign
branches of Indian banks operating abroad have not created the domestic deposit base for
this reason.
 An increase in domestic deposit is supposed to have positive influence on the
deposit mobilization of all banks including the foreign banks. That helps the building up of
the asset portfolio. To what extent deposit mobilization will affect the activities of foreign
banks depends on the competition between domestic banks and the foreign banks in the host
country. Foreign banks prefer the creation of a domestic deposit base in the domestic
currency as this helps in the expansion of business. Many countries do not allow the foreign
banks to create a domestic base, as the latter is perceived to help the foreign bank to mount
an attack on the domestic currency.
Again, the exchange rate changes affect the activities of the foreign banks.
An increased volatility of the exchange rate increases the risk factor in international
banking, and unless this aspect is properly taken care of, this acts negatively so far as the
growth of international banking is concerned. We are to understand that the balance- sheet
of the foreign banks in the head office is in their mother currency. If Indian rupee
appreciates vis-à-vis their mother currency, that would show a good results in their foreign
operations.
An index of activity of foreign banks may be their aggregate asset structure,
though the number of branches may be another indicator. Some studies take both. We find
that the expansion of international banking in a country depends on several factors like
importance of trade in GDP, the dynamism of the exchange rates, the deposit base and some
others as explained in earlier paragraphs. The literature also examines the quantitative
strength of different variables using an econometric model (Nandi, 1996). We will pursue
here another type of international banking activity which is conducted in offshore areas and
specially tax-haven locations.

Advantages of Offshore Banking

1 Offshore banks provide access to politically and economically stable jurisdictions. This
may be an advantage for those resident in areas where there is a risk of political turmoil
who fear their assets may be frozen, seized or disappear. However, developed countries
with regulated banking systems offer the same advantages in terms of stability.

2 Some offshore banks may operate with a lower cost base and can provide higher
interest rates than the legal rate in the home country due to lower overheads and a lack of
government intervention. Advocates of offshore banking often characterise government
regulation as a form of tax on domestic banks, reducing interest rates on deposits.
3 Offshore finance is one of the few industries, along with tourism, that geographically
remote island nations can competitively engage in. It can help developing countries
source investment and create growth in their economies, and can help redistribute world
finance from the developed to the developing world.

4 Interest is generally paid by offshore banks without tax deducted. This is an advantage
to individuals who do not pay tax on worldwide income, or who do not pay tax until the
tax return is agreed, or who feel that they can illegally evade tax by hiding the interest
income.

5 Some offshore banks offer banking services that may not be available from domestic
banks such as anonymous bank accounts, higher or lower rate loans based on risk and
investment opportunities not available elsewhere.

6 Offshore banking is often linked to other services, such as offshore companies, trusts or
foundations, which may have specific tax advantages for some individuals.

7 Many advocates of offshore banking also assert that the creation of tax and banking
competition is an advantage of the industry, arguing with Charles Tiebout that tax
competition allows people to choose an appropriate balance of services and taxes. Critics
of the industry, however, claim this competition as a disadvantage, arguing that it
encourages a “race to the bottom” in which governments in developed countries are
pressured to deregulate their own banking systems in an attempt to prevent the offshoring
of capital.
Disadvantages of Offshore Banking

A Offshore banking has been associated with the underground economy and organized
crime, through money laundering. Following September 11, 2001, offshore banks and tax
havens, along with clearing houses, have been accused of helping various organized
crime gangs, terrorist groups, and other state or non-state actors.

B The existence of offshore banking encourages tax evasion, by providing tax evaders
with an attractive place to deposit their hidden income.

C Offshore jurisdictions are often remote, so physical access and access to information
can be difficult. Yet in a world with global telecommunications this is rarely a problem.
Accounts can be set up online, by phone or by mail.

D Developing countries can suffer due to the speed at which money can be transferred in
and out of their economy as “hot money”. This “Hot money” is aided by offshore
accounts, and can increase problems in financial disturbance.

E Offshore banking is usually more accessible to those on higher incomes, because of the
costs of establishing and maintaining offshore accounts. The tax burden in developed
countries thus falls disproportionately on middle-income groups. Historically, tax cuts
have tended to result in a higher proportion of the tax take being paid by high-income
groups, as previously sheltered income is brought back into the mainstream economy.
International
Banking