Latin America’s largest lender Itau eyes a share of India’s banking pie

Representatives from Itaú Unibanco Holding SA’s retail, wholesale and asset management divisions held preliminary talks with government officials in New Delhi and expressed their willingness to open shop in the country, the people cited above said on condition of anonymity.

Foreign banks seeking to enter India need to secure approval from the Reserve Bank of India (RBI). Approval for the Sao Paulo-based Itau may be linked to Brazil allowing an Indian bank to open a branch there. For now, State Bank of India is only Indian bank operating in Brazil through a representative office.

The RBI allows foreign banks to open branches or wholly-owned subsidiaries in India. Despite the regulator’s preference for the latter, most foreign banks in India operate through the branch model. Itau’s branch plans come two years after Brazil became India’s fifth-largest trading partner.

In an email response to a query, a spokesperson for Itau said, “there are no negotiations for the bank’s operation in India at the moment”. An email query sent to an RBI spokesperson remained unanswered.

India had 45 foreign banks – of which two have India subsidiaries and the rest operate as branches — as of 31 January, showed data from RBI. The world’s fifth largest economy has also seen a fair number of foreign banks shut shop in the past decade. Industry experts said that India’s banking is an extremely competitive environment and foreign banks cannot really demonstrate any particular unique selling point that is distinctly different from what the local banks have, be it technology or even product designs.

“The new phase right now has seen that on account of factors like geopolitics, a lot of jurisdictions under bilateral arrangements have increased trade with India,” said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services. “The attraction for a bank from these nations that trade with India is to be in the trade finance business. Then somewhere along the way, there could be a case for a rupee trade between the nations, although it is just a matter of surmise at this point.”

As per S&P Global Market Intelligence, Itau retained its position as the largest Latin American bank in the annual rankings, leading an all-Brazilian top five. The lender grew assets 18.4% to $439.50 billion in 2022, and was one of the biggest climbers in the world’s top 100 banks by assets, rising 11 places to 73rd, S&P Global Market Intelligence said in a note on 26 April last year.

A universal bank, present in 18 countries, Itau had 70 million retail and corporate clients, 4,200 branches and so-called client service branches, 43,800 ATMs, according to its latest available annual report of 2022. It is present in Argentina, Bahamas, Brazil, Chile, Colombia, Spain, USA, France, Cayman Islands, UK, among others.

Globally, the bank is ranked 203 on the basis of market capitalization with $63.25 billion, as compared to $80.53 billion of India’s largest lender State Bank of India (SBI) that came in at number 63, as per data from Bloomberg.

According to Riaz Thingna, partner, Grant Thornton Bharat, India’s trade finance market is vast and growing, driven by increasing international trade activities and foreign banks, with their global expertise and networks, are significant players in this space.

“As India continues to integrate into the global economy, the demand for trade finance services is expected to rise, presenting an opportunity for foreign banks to tap into this growing market by offering innovative products and solutions tailored to the needs of Indian businesses engaged in international trade,” said Thingna.

Itau’s India entry plans come at a time when trade between India and Brazil are at a record high. In 2021, India became the fifth largest trading partner of Brazil and bilateral trade registered an increase of 63.5% to $ 11.53 billion, compared to $7.05 billion in 2020. This further expanded by 32% in 2022 to $15.2 billion. While India’s exports in 2022 were at $8.8 billion, its imports stood at $6.4 billion.

Major Indian exports to Brazil include processed petroleum products, agro-chemicals (insecticides, fungicides), chemicals, pharmaceuticals, engineering products, textured filament yarn, and unwrought aluminium. Brazilian exports to India included crude oil, soya oil, gold (non-monetary), cane sugar, cotton, gum, wood and turpentine oils, chemicals (carboxylic acids) and iron ore and concentrates.

The people cited earlier said that GIFT City is also being considered as the entry point into India. “They might look at opening a branch at GIFT City too,” said a government official, one of the two people cited earlier.

The Indian government is nudging foreign banks and other multinational companies to have some presence at GIFT City. The central government is keen to have foreign banks and MNCs in India set up global capability centres (GCCs) at the GIFT City, counting on their ability to generate jobs. The matter was discussed at a 23 January meeting between Union finance minister Nirmala Sitharaman and representatives of several foreign firms, Mint reported in January.

Experts said that GIFT City is emerging as a significant financial destination in India. “It has been designed to be a global financial hub, offering a range of incentives and a conducive regulatory environment to attract financial institutions, banks, and other financial service providers,” said Thingna.

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Published: 04 Mar 2024, 09:35 AM IST