Indian bank opens shop in SA

2012-09-15 15:44

The flourishing trade between India and South Africa has attracted the attention of one of India’s largest banks.

Bank of India, the third-largest lender in the populous Asian country, opened its doors in Johannesburg this week to corporate customers after exploring opportunities for five years in the local market for five years.

Chairman and managing director Alok Misra said the bank would target the corporate banking market, particularly trade and infrastructure finance, in the early stages of its entry into the South African market before cautiously expanding to a mass, retail and man-on-the-street client base.

“South Africa is a hub of activity and we want to target the high volumes of trade between India and South Africa. We have set up in Johannesburg because the city is a financial powerhouse in Africa.

“Initially, we will focus on corporate and trade-related business, small business funding and syndication of loans,” Misra said.

Over the past five years, the value of trade between South Africa and India has grown to $10 billion (R82 billion) as both countries opened their markets to one another’s companies.

It is expected to reach up to $25 billion in the near future.

Exports to India account for roughly 4.3% of South Africa’s total exports to world markets, while Indian imports account for 4.2% of South Africa’s total imports.

South Africa mainly exports minerals such as gold, diamonds and platinum to India, along with machinery, while India exports manufactured goods such as ships, boats, vehicles, pharmaceuticals, mechanical appliances and electrical machinery.

The Reserve Bank’s deputy registrar of banks, Nkosana Mashiya, said Indian banks were eyeing the lucrative India-South Africa trade corridor. He noted that Indian lenders preferred entering the local market through greenfields projects instead of making acquisitions, as has been the case with Western banks such as Barclays or Standard Chartered, which attempted to acquire Nedbank.

“They are setting up shop in South Africa and are getting licences. They will take deposits and will rely on funding from their head office,” said Mashiya, who is a former National Treasury official.

A number of Indian banks have entered the local market, but they have traditionally targeted areas with a high concentration of Indians, such as Fordsburg and Lenasia in Johannesburg, and Chatsworth in Durban.

Indian lenders such as Bank of Baroda, State Bank of India and HBZ Bank have failed to grow beyond this community and are largely unknown in South Africa – despite operating here for years.

With a population of 1.3 million Indians (about 2.7% of the total population), South Africa has the highest Indian population outside of India.

Mashiya felt Bank of India could be the first Indian bank to venture out of the traditional market.

“It will initially target the Indian community and expand beyond this market later on.”

In the corporate and merchant banking space, Bank of India is likely to face stiff competition from local banks and a host of global banks, such as Citi Group and Deutsche Bank.

If it decides to enter the retail market, the likes of Standard Bank, Absa, First National Bank (FNB), Nedbank and Capitec will be waiting for it.

While Indian banks are making a foray into Africa, Africa is returning the favour.

In April, FNB became the first African bank to enter the Indian market, which is known to be very tough and competitive.

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