<div>Foreign banks in India face a big question mark over their foreign exchange (forex) operations as they near the 30 September 2013 deadline set by the European Securities and Markets Authority (ESMA) which makes it made mandatory for central counter-parties (CCP) in non-European Union (EU) jurisdictions to be recognised by it.</div><div> </div><div>The issue has now come to a boil given the initial reluctance shown by the Reserve Bank of India (RBI) and the country’s CCP –- the Clearing Corporation of India Ltd (CCIL) -– to fall in line with ESMA’s (a third party) wishes. ISDA officials met with RBI and CCIL officials on 11 and 12 March, but those in the know of these meetings, nothing conclusive was arrived at.</div><div> </div><div>Foreign banks have also approached the RBI to seek an early resolution, but senior officials at these banks admitted the matter has taken diplomatic overtones. “Such unilateral norms across financial jurisdictions is hard to comply with in an inter-connected financial world," said a foreign bank official on the condition of anonymity.</div><div> </div><div>If the new norms were to kick in from 1 October, foreign banks cannot use the CCIL platform to settle trades. As on date, the CCIL platform is used only for debt trades, but effective from 1st January 2014, the RBI wants forward trades in the forex mart to be also on it. When contacted by BW, the RBI spokesperson “declined comment” on the issue.</div><div> </div><div><strong>It Could Singe Ambitions</strong></div><div>The ESMA stand can affect the ambitions of several large foreign banks like Standard Chartered Bank (StanChart), HSBC and Citi which see India as a key growth market. Numbers are hard to come by given these banks do not do their segmented reporting public in India, but concede in private the corporate banking piece contributes significantly to their revenues even as they strive to grow their retail business in a niche manner.</div><div> </div><div><a href="/image/image_gallery?uuid=4f600678-e8d1-4783-979d-0385f2a8e94a&groupId=520986&t=1371104970183" target="_blank"><img width="250" vspace="8" hspace="8" height="275" align="right" src="/image/image_gallery?uuid=d45cccd5-5451-4fd3-8d18-5202c4ae3176&groupId=520986&t=1371104979457" alt="" /></a>It is a fact bought in the latest RBI Report on Trend and Progress of Banking in India (2011-12). It notes “in recent years, generally profitability of foreign banks was higher than other bank groups. Some past studies on profitability concluded that higher profitability of foreign banks could be attributed to their access to low cost CASA (current and savings accounts) deposits, diversification of income as well as higher “other income”.</div><div> </div><div>“Other income” can be hugely affected if ESMA has its way. It was the main reason why during 2011-12, foreign banks accounted for close to 12 per cent of the total net profit of all banks; as against this, their share in total assets of Indian banking sector stood at 7 per cent, says RBI. Foreign banks are yet to declare their results for 2012-13.</div><div> </div><div>As at end-March 2012, there were 41 foreign banks operating in India with 323 branches. Another 46 foreign banks had their representative offices in India. Among foreign banks, Standard Chartered had the maximum spread of bank branches in India (96 branches) followed by HSBC (50 branches), Citi Bank N.A. (42 branches) and Royal Bank of Scotland N.V. (31 branches).</div><div> </div><div><strong>United We Stand...</strong></div><div>The silver lining is ESMA’s diktat has been resisted by key European banks. The chief operating officers and treasury head six major European financial entities -- Deustche Bank, BNP Paribas, BNP Asia Bank, StanChart, Societe Generale and Barclays –- have written to Mitchell Barnier, the European Commisioner for Internal market and Services in the European Commission on the fallout of ESMA’s rigid stand.</div><div> </div><div>“It would have serious implications for the current, long established Asian operations of EU banks at a time when the EU is looking to the East for growth opportunities, and Asian operations are looking for the West for investments”, said six senior officials at these banks the co-signed letter. Their names are Peter Connor, managing director-Deutsche Bank (Asia Pacific); Patrick Colle, general manager-BNP Paribas; Robert W. Hawley head of fixed income-BNP Asia Bank; Brendan Mackinney, regional chief operating officer at StanChart (Europe); and Andrew Jones, chief operating officer at Barclays (Asia Pacific).</div><div> </div><div>The US Securities Exchange Commission and Japan Financial Services Agency too have voiced reservations on ESMA’s worldview.</div><div> </div><div><em>businessworldonline (at) gmail (dot) com</em></div>
