The Hindu Business Line : SBI goes to China; `looking at it as a long-term prospect'

"We have been told that no other foreign bank has been able to secure meetings at such a high level. It shows how seriously they have begun to take India."

MR OM PRAKASH BHATT, SBI CHAIRMAN

Beijing , Aug. 12

Four months before China is due to fully open up its banking sector under its commitments to the World Trade Organisation, State Bank of India has formally launched commercial banking operations in Shanghai, becoming the first Indian bank to open a branch in the mainland.

"India's trade with China is growing faster than with any other country," said Mr Om Prakash Bhatt, SBI Chairman, in an exclusive interview to Business Line in Beijing. Last year bilateral trade grew to over $18 billion, an increase of almost 38 per cent over the previous year.

Mr Bhatt pointed out that every major economic projection points to India and China as the two regions for substantial growth in the medium to long-term. "By establishing ourselves in China now, we stand to reap benefits later," he said, indicating that while it may take time for SBI's China operations to take off, the bank is looking at the market as a long-term prospect.

Boosting investments

He said SBI's mandate in China is to facilitate the growth of Indian investment in China and to provide a window in Shanghai for investment possibilities in India.

Indian investments in China currently include interests from IT, pharmaceuticals, auto-components and tyre manufacturing. They still comprise only a small fraction of total foreign direct investment into China, worth $97.1 million at the end of 2004, but they are growing.

"For us it's all about leveraging our relationships with the Indian companies which have been banking with us for decades and are now looking to spread their wings and move out to China and other countries," said Mr Bhatt.

Operating licence

The kind of operating licence that SBI has been granted in China is a level-1 licence, which places certain restrictions on the bank's operations. It is, for example, only permitted to have foreign and joint venture clients and cannot make yuan-denominated transactions. Domestic Chinese clients are thus off limits for the moment.

But Mr Bhatt says that this fits perfectly with SBI's strategy. "We want to wait and watch in this notoriously difficult market. Once we have gained some experience, we can apply for a level-2 licence and begin to target domestic customers."

High-level meetings

He had several high-level meetings while in Beijing including with the Governor of the People's Bank of China, Mr Zhao Xiao Chuan, and the Chairman of the China Banking Regulatory Commission, Mr Liu Ming Kang.

The SBI Chairman was upbeat following these meetings. "We have been told that no other foreign bank has been able to secure meetings at such a high level. It really shows how seriously they (the Chinese) have begun to take India," he said.

Banking is one of the few sectors where India is generally thought to be in a healthier position compared to its northern neighbour. Chinese banks are notoriously inefficient in their lending. On measures like ROAs (return on assets) and NPAs (non-performing assets), Indian banks are generally better off than their Chinese counterparts. SBI's ROA in 2004, for example, stood at 0.94 per cent compared with 0.62 per cent for the Bank of China.

During his meeting with top banking officials, Mr Bhatt thus offered SBI's assistance in China's ongoing attempt to reform and modernise its banking industry. "In particular I stressed our training, inspections and audit systems and also how we work out NPAs," he revealed.

He added that the Chinese side displayed much curiosity about how India was managing growth in the agricultural sector. "They wanted to know about rural lending and how we are able to be successful despite the massive size of the country," he recalled.

"We expect greater cooperation in the banking area in the coming months, to our mutual benefit," Mr Bhatt concluded.

Apart from SBI, several other Indian banks currently have representative offices in China, including Punjab National Bank, Bank of Baroda, Canara Bank and Bank of India, which are also reportedly applying for licences to begin commercial operations. No Chinese bank has a branch in India.