As the Indian public and private sector lenders have announced their base rates, foreign lenders have also opted to set their base rates at least 50-100 basis points (bps) lower than the Indian banks.
Amongst the foreign lenders in the country Citibank and Standard Chartered Bank have set their base rate at 7.25 per cent, same as HDFC Bank. Their rate is 25 bps lower than the country’s largest lender State Bank of India (SBI). On the other hand HSBC, the third largest foreign lender in the country has set its base rate at 7.0 per cent while Deutsche Bank has set to a lower competitive rate at 6.75%.
However all the other major public sector lenders - Bank of Baroda, Bank of India, Punjab National Bank and Union Bank of India have set their base rate at 8%.
A senior executive of a foreign bank said, “Given the size of our balance sheets, there is no question of a rate war with domestic banks. Our base rates reflect the area of the market that most foreign banks operate, which is at the short end.” “Most foreign banks are not active in the term loan market or infrastructure loans.”
Some of the foreign banks in the country have much lower cost structure in comparison to their public sector counterparts. For instance, as of 31 March Standard Chartered Bank current account, savings account ratio stood at 60%.
Foreign banks balance sheet is much smaller in comparison to their domestic counterparts and they depend more on fee income for profits. Unlike Indian banks, they have restrictions regarding the number of branches they are allowed to open.
As of March 31, 2009, Citi, the largest foreign lender, domestic loan book accounted to Rs 39,919.94 crore as compared to ICICI Bank’s 2,18,310.85 crore at the end of the same period.