Banks worldwide are reeling from increasing but inconsistent regulation and political manoeuvring that constrains their ability to price and manage scarce capital attractively. This will be exacerbated when the UK regulator bifurcates in 2013 and tighter European and US regulation extends its reach to London. Many London-based banks feel that recovering equilibrium elsewhere is a better option than staying put.
Most obvious alternative locations, however, have significant drawbacks. Switzerland is very expensive, Dubai’s economic strength is waning, Hong Kong and Shanghai are controlled from the centre and Singapore has high inflation and continues to split the market with Hong Kong. Banks must challenge assumed thinking if they are to find the right location to fulfil their potential.
India has the key characteristics needed to become the new domicile for global banking – strong economic growth, political stability, a world-class exchange and trade infrastructure, and widespread use of English.
Factors in India’s favour
strong economic growth: Banks are beneficiaries of economic growth. India’s is among the strongest in the world – the country has the fourth-largest economy by GDP and an investment rate forecast to reach 38.4% in 2012, and is ranked the world’s second-most-attractive location for foreign direct investment
political stability: India is the world's largest democracy, offering a stable political environment and a well-established judiciary. While corruption and opaque government policies and regulations are evident (as in all four BRIC countries), the overall risk of doing business in India’s leading cities is no greater than elsewhere
language, culture and time zone: English is used widely. There is a strong entrepreneurial culture and an accessible trading timezone positioned between the Gulf and the Far East
world-class exchange and trade infrastructure: The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are among the top ten global exchanges, with a combined market capitalisation of over GBP3 billion
demand for financial services: Estimates suggest that financial services consumption by Indian households and firms will rise through USD70 billion by 2015 to USD120 billion by 2025 in nominal terms.
Challenges to be addressed
To become the preferred domicile for global banks, India must overcome significant obstacles relating to:
inexperienced workforce: India’s workforce is well educated but presently lacks the experience and capability required by successful international banks – most Indian banks are essentially local and retail. To close the skills gap, the government can encourage Indian nationals working abroad to come home
lack of government investment: It could take a few years for India to develop as a global financial centre. However, the Indian government can shorten this time dramatically by making a substantial initial investment, for example, creating enterprise zones with incentives specifically for financial services. Investing in attracting foreign banks might ultimately yield better returns than the government’s current, conventional foreign investments
its position on banking regulation: India needs to strike a balance between responsible regulation and acceptable levels of risk and, at the same time, find a way to circumvent some of the country’s more bureaucratic processes. Enterprise zones have the potential to achieve this. Even a partial victory for banks in this area may prove more attractive than the onerousness of regulation in the West.
PA’s track record in helping public and private sector work together effectively is unrivalled. In the finance sector we have worked closely with regulators to deliver practical policy and supervision, and with financial institutions to deliver effective and non-cynical compliance that remains cognisant of business needs. We have brought step improvements to exchanges’ efficiency and security and even designed whole settlement systems.
To find out how we can help your bank find the right place to base its business please, contact us now.
ITP Division, Ministry of External Affairs, Government of India