PUBLIC SECTOR banks are expected to close down around 70 of their total 216 foreign branches and other operations by the end of this year in order to cut costs and preserve capital, a senior Finance Ministry official said.
State Bank of India, Punjab National Bank, Indian Overseas Bank, IDBI Bank and Bank of India are among the state-owned banks leading the process of scaling down overseas operations.
Leaving aside profitable operations — for instance, remittance offices in Gulf countries such as Oman and UAE — those not generating enough revenues are being closed down.
“The banks have initiated sale of non-core assets, closure of unviable branches and other steps to reduce capital. So far, they have closed down 37 overseas operations and another 60-70 operations will be closed down by the end of the year. These operations are a combination of full-fledged branches, representative offices and remittances offices,” the official said, adding that some of the branches are being converted into smaller representative offices.
For shutting down many full-fledged branches, the banks are already in the process of obtaining regulatory approvals, which is a time-consuming exercise, the official said. SBI has closed six foreign branches while some branches in Sri Lanka and France are being converted into representative offices. The country’s largest lender is planning closure of another nine operations.
Some banks have already closed their operations in locations such as Dubai, Shanghai, Jeddah and Hong Kong. The banks are also merging smaller branches into bigger ones, and consolidating equity stakes in overseas joint venture having.
As part of its Rs 2.11 lakh crore capital infusion in banks announced last year, the government had asked them to rationalise overseas branch operations among a series of other measures. Shutting unviable operations will free up capital, which the banks will deploy for domestic operations.
Record losses in the last year and mounting bad loans have affected the financial health of most public sector banks, 11 of which are under the Reserve Bank of India’s Prompt Corrective Action framework (PCA).
The PCA is a framework put in place by the RBI to ensure that weak banks do not go bust and follow prompt measures to put their house in order.
Earlier this week, the Finance Ministry approved fresh capital infusion of Rs 11,336 crore in five state-owned lenders — Punjab National Bank, Corporation Bank, Andhra Bank, Allahabad Bank and Indian Overseas Bank.
This is the first capital infusion in the current fiscal and the remaining amount of Rs 53,664 crore is expected to be disbursed during the course of the year. The infusion will be a part of the remaining Rs 65,000 crore out of Rs 2.11 lakh crore capital infusion announced by the government for two financial years.