CaymanNet Business Tuesday
Cayman NetBusiness Tuesday
Foreign banks scare Indiancounterparts
By INDRAJIT BASU,
UPI Business Correspondent
CALCUTTA, India, (UPI) - Recently, in ahigh-profile banking summit in India, K.V. Kamath, the chairmanICICI Ltd, a developmental financial institution in the countrythat also owns a bank, admitted that he is suffering from paranoia.
A paranoia that the Indian banking sectornever imagined it would ever face, which is the money power ofthe foreign banks in India threatening to upstage the local banksin the country.
"My paranoia goes like this: not onlydo foreign banks have people, they have the products and the processes,none of which we really have," said Kamath, adding that "ifone or more foreign banks were to move into India, all it wouldrequire is money and, if there was even a commitment of half abillion to one billion dollars on the table, we would see thegame shifting."
For India's banking sector, the realitythat they could ever face competition from foreign banks operatingin the country is difficult to gulp. Because not only do theyhave a much larger network, but for years, inward looking protectioniststate-policies ensured that Indian banks, no matter how inefficientand complacent they are, flourished, while foreign banks despitetheir efficiencies, got stymied.
Restrictive banking policies for the last40 years did not allow foreign banks to come in, did not allowthem adequate branches, penalized their expansion through highertaxation and, imposed intermittent rules that also made it difficultto pump money in.
However, all that changed suddenly. Severalrevolutionary policies announced since January have turned thetable against Indian banks, and, have started to scare the witsout of Indian banks.
Here's why. Early in February, the governmentsaid that it would allow 49 percent foreign direct investmentin Indian banks.
This was in addition to the total of 49percent in portfolio (passive) investments by foreign investorsin the banking sector that the state had allowed a while beforethat announcement.
Reserve Bank of India, the country's centralbank, granting permission allowing foreign banks to set up whollyowned subsidiaries that effectively removed the restrictions hinderingexpansion of their Indian branches, followed this. Besides, givingthem yet another opportunity for unhindered organic growth, the2002 budget allowed foreign banks to grow by acquiring local privatelyheld banks.
"Foreign banks will certainly enterIndia," feared Kamath. "Whether they do it through organicgrowth or through acquisitions will depend on what the rules saybut we should prepare ourselves for competition."
Kamtha's fear is not baseless. With therules favoring the forward-looking, fleet-footed players, globalbanking behemoths like Citigroup, Honkong and Shanghai BankingCorp., ABN Amro, ING and others have started eyeing India moreseriously than ever before. For instance, the Dutch financialservices giant, ING, has identified its target, the local VysyaBank, where it already holds 20 per cent through a subsidiary.Another Dutch bank ABN Amro has been quite vocal about its acquisitionplans but is yet to home in on a target.
Besides, Nanoo Pamnani, chief executiveofficer of Citibank India, said there are other reasons favoringa greater participation by foreign banks.
"The new economy companies must growglobally to prosper," he said, adding, "under the circumstancesyou need to have foreign banks that understand Indian companiesand if they are with these Indian companies across the world Ithink it will facilitate taking India's globalization to the 21stcentury."
Banking experts say that once their plansfor the Indian operations crystallize, the next inflection pointin the industry would be when Indian banks, particularly the state-ownedbanks run out of capital. "Neither will the government shellout funds, nor do these banks get the desired valuation in theprimary market," said Mayur Shetty, a freelance industryanalyst in Mumbai.
"This would trigger a forced consolidation,something which the government is even unwilling to think about.There would be a scramble for business among the survivors, someof whom would offer higher rates on deposits and tilt the balancein their favor."
Experts add that global banking groups likeCitibank, Honkong and Shanghai Banking Corporation, Standard Charteredand American Express Bank for instance, have all been in Indiafor anywhere between 100 and 150 years, and don't need to be taughtthe basics of banking in this country. They are well versed withthe changing face of the Indian customers, their preferences,and their tilt towards technology.
Moreover, in terms of size, some foreignbanks, with global assets of over $500 billion are awesome. Evenlocal giants like the State Bank of India, which has an asset-baseof over $21 billion, or even the new merged private sector ICICIBank, which will have a combined asset-base of $20 billion, lookpuny in context. The rest actually do not account for anythingat all.
Thus adds Saurav Majumdar, a banking analyst,"in today's world, being big in the Indian context is notbig at all. You've got to be a big boy of global size. And thisis where the majority of state-run banks will get hit unless theyramp up efficiencies real fast"
"But even if they do, the chances arethat the Indian banking sector could still see the game shifting,"Majumdar said.
Survey: Silicon Valleymore hopeful
SAN JOSE, Calif., (UPI) -- Consumer confidencein California's Silicon Valley, which had been rattled by thesudden downturn in the dot-com industry, appeared to be on a modestrebound Saturday, according to a new survey released by San JoseState University.
The university's Survey and Policy ResearchInstitute found a slim majority of those surveyed felt the nationaland regional economies would be on the upswing in the near future,although prospects for an increase in employment were consideredless promising and a vast majority had no plans to purchase realestate in the near future.
"People here see the national economyrecovering, but they are more circumspect about prospects forSilicon Valley," SPRI Director Philip Trounstine said ina release Saturday. "They are still shaken by layoffs, collapsingprofits and plant closures in the high-tech world; their optimismis justly tempered."
According to the survey of some 1,000 residentswho presently reside in the high-tech corridor, 63 percent feltthe overall U.S. economy was improving, but only 53.6 percentpredicted an improvement in the regional economy.
Thirty-one percent of those surveyed, however,were resigned to seeing employment in the area drop further while36.8 percent predicted a static unemployment rate; only 28.4 percentwere optimistic that the employment market would increase.
"It has been tough, but I think thingsare opening up," Revathi Viswanathan, a 25-year-old seekinga job in human resources, told the San Jose Mercury News. "Isee a lot more human resources positions opening up on the Weband in newspapers."
Although a majority of respondents did notexpect a new employment boom in the valley, the vast majorityof those with jobs expressed confidence that their personal economicsituations would either improve or at least remain the same inthe coming year. Fewer than 8 percent feared that their incomescould decrease.
A gradual improvement in Silicon Valley'seconomy was considered unlikely to revive the hot real estateboom triggered by nouveau dot-com millionaires plunking down vastsums of cash in order to secure a home in either the valley orthe highly desirable nearby city of San Francisco.
While 68.5 percent opined that the "dot-bomb"recession had made it more of an opportune time to purchase ahome at a more reasonable price, only 6.6 percent said they wereconsidering a home purchase in the next three months.
"People recognize that the recessionhas made major purchases attractive, but they aren't much in thebuying mood," Trounstine declared. "That's likely areflection of their uncertainty about how quickly the regionaleconomy will recover."
London's Foreign BankersStart Packing Their Bags
by Jeremy Hetherington-Gore,
Tax-News.com, London
London's foreign banking community - oneof the country's biggest financial success stories over decades- was aghast yesterday at Chancellor Gordon Brown's decision totax branches as if they were incorporated subsidiaries, treatingthem as if their local operations are financed with equity capitalrather than debt, therefore massively increasing their taxableprofits.
Branches have until now been allowed tofinance their operations with loans from overseas parent companies,the interest being tax deductible.
Although banks are the most obvious victimsof the measure, because of the large amounts of capital they consume,many other types of company could suffer, including insurancecompanies, leasing companies, venture capital providers and evencompany HQs if they have been using London as a staging post forthe onward financing of EU subsidiaries.
The chief financial officer of one largeforeign bank told the Financial Times it would cost his bank andothers like it UK£20m- 30m a year.
"For the smaller banks the number maybe smaller but it is a much bigger issue. Some of them are seriouslythinking about getting out of London. All the banks will lobbyvery heavily against this," he said.
There are about 750 foreign banks in London,although not all of them have branch status; and hundreds morefinancial operations of other types which could be affected.
The Chancellor booted into touch the proposedremoval of tax privileges for non-domiciled foreigners in London,but this anti-branch measure may have been calculated to haveabout the same effect, with a mass exodus of bankers from Londonto friendlier centres if the Treasury sticks to its guns.
Ian Mullen, chief executive of the BritishBankers Association, said: "This will massively increasethe costs of foreign banks operating in the UK and have an adverseimpact on jobs and the competitiveness of the City. To cherry-pickforeign banks will have a significant effect on London's uniqueposition and adversely impact jobs and in the long term, leadto a loss in tax revenue."
In a letter to the Financial Times, AngusMacLennan, chairman of the Foreign Banks and Securities HousesAssociation, warned: "Modern technology and the increasingmobility of labour - which this government supports - is suchthat much of the business which is transacted or booked in theLondon branches of foreign banks can very easily be done or placedelsewhere."
The changes come into effect on January1st 2003 and would generate UK£350m in the first year, saysthe Treasury, with the gain rising to UK£650m in the followingyear.
Well, yes, that's on the robust assumptionthat the foreign targets of this lunatic measure will remain stuckto their chairs like so many patient geese waiting to be plucked.
The fate of governments which spit in theface of foot-loose international financiers was demonstrated inthe 1970s when the US attempted to tax international capital issues,and promptly lost the business to the Euromarkets; and again quiterecently when the German government was forced to back down aftera unilateral attempt to tax interest payments at source causeda immediate flood of capital to Switzerland.
New PropertyManagement Valuer at Deloite & Touche
AlastairPaterson and Brent Yates
Following his successful completion of anintensive course in Property Adjusting at the Vale National TrainingCenter in Arlington, Texas, Brent Yates, a Senior Valuer and LossAdjuster at Deloitte & Touche Property Management Ltd. hasbecome the only fully trained Caymanian Loss Adjuster on the Island.
Completion of the course, which concentratedon insurance loss adjusting in respect of property claims andcomputerized damage estimating, means that Brent's already wideranging experience in loss adjusting in the local market, hasnow expanded to include the American Homeowners and Commercialpolicies. He now has the necessary certification to make lossadjustments according to US as well as current local standards;which are based on existing UK practices.
With over seventeen years' experience inresidential and commercial valuations and construction estimatesin the Cayman Islands. Brent is Caymanian; and is respected bylocal financial and legal institutions.
Deloitte & Touche Property ManagementLtd. now offers professional property, insurance and constructionconsulting services. These include comprehensive property management,project and construction management, contract and financial monitoringof projects, valuations, quantity surveying and insurance claimsadjusting services.
According to Alastair Paterson, ManagingDirector of Deloitte & Touche Property Management Ltd, "Deloitte& Touche encourages members of staff to strive towards achievingprofessional qualifications and Brent's recent achievement addseven more value to the range of property consulting services thatwe can offer".
Operating in the Cayman Islands since 1973,the firm is a national practice of Deloitte Touche Tohmatsu, aglobal leader in professional services whose 95,000-team membersprovide seamless services to clients in 140 countries. With sevenPartners and approximately 150 professional and support staff,the Cayman Islands firm offers a wide range of services including:Assurance & Advisory (Audit), Property Management, FinancialAdvisory Services, Management Solutions,
Accounting Services, and Human Capital AdvisoryServices. Trust and Corporate Services are carried out under theauspices of The Harbour Trust Co. Ltd., a licensed trust company,owned and operated by Deloitte & Touche.