Sberbank goes to India

Sberbank CEO and its Board Chairman Herman O. GrefSource: Gettyimages/Fotobank

Sberbank CEO and its Board Chairman Herman O. GrefSource: Gettyimages/Fotobank

Sberbank, Russia’s largest commercial bank, plans to open a branch in New Delhi before the end of this year. Over the next two years, the Indian office will be researching the Indian market, looking for unoccupied niches, Sberbank CEO and its Board Chairman Herman O. Gref told RIBR. “We won’t be able to begin active operations in India for several years,” he believes.

Sberbank filed a request with the Central Bank of India in December 2009, while more than a year ago India’s Central Bank gave principal permission for Sberbank to open an Indian branch. “Currently, the bank is conducting activities required to receive a banking license from the Central Bank of India, including searching for personnel and equipping the premises,” Sberbank said in a statement.

Gref refused to specify investment figures, only saying that Sberbank will be developing its Indian business “along with increasing its client base and implementing potential opportunities for massive entry into the market.” Among Russian banks, Sberbank seems to have the greatest experience in working with private depositors, and also lends actively to the real sector. According to Russian media reports, the bank also plans to develop its investment business. By 2012, Sberbank hopes to gain a controlling interest in Troika Dialog, one of Russia’s leading investment companies. Another of Troika’s major shareholders is South Africa’s Standard Bank, which is expected to hold slightly more than 36% in Troika.

According to “The Banker” magazine, Sberbank ranks 43rd in terms of Tier 1 capital among the world’s top banks. The main shareholder is the Central Bank of Russia, which has a 60.3% stake. Foreign investors hold slightly more than 32%.

Sberbank’s desire to enter the Indian market is understandable. Russian-Indian trade has been growing rapidly as both economies recover from the global financial crisis. Bilateral trade climbed 34.7% over the first five months of 2010, to USD3.41 billion. If this tendency continues unabated, Russian-Indian trade volume could well reach USD10 billion towards the end of the year.

Sberbank is the second Russian bank to have an eye on India. Russia’s second largest bank, VTB, opened a branch in New Delhi in 2008. Sergei Bulayenko, who heads the New Delhi branch, told RIBR how VTB’s Indian business is doing.

How has VTB New Delhi operating volume changed since the opening?

Sergei Bulayenko:
VTB’s branches in Shanghai (China) and New Delhi are the first Russian banks in Asia. Operations have been on the rise since we opened. From the start, VTB has been placing funds in India at high rates, which allowed us to minimise losses at the market entry stage. The Indian branch earns well on conversion operations, lending and guarantee transactions. In 2009, VTB New Delhi’s profit rose over USD133,000 (by Russian accounting standards).

Have your expectations for turnover and client base been met?

Sergei Bulayenko:
Not quite. There has been neither quick growth nor broad expansion, but gradually, step by step, we are gaining a foothold in India, and shaping our niche. Our main target audience here is India-registered companies with Russian capital, as well as Indian companies working with Russia and other CIS countries. Not all of these companies, however, are our clients yet. This is where Russian banks will have to struggle with Indian rivals. Competition is very high in India’s banking sector, and this is seen as a natural process, helping streamline business and enhance the flexibility and quality of customer service.

Our Indian branch continues efforts to attract new clients, especially among Russian companies newly registered in India. Our competitive advantages are the high quality of customer service and quick decision making. These two factors are crucial for competing with Indian and foreign banks.

Are there more Indian or Russian companies among your clients?

Sergei Bulayenko:
At this point, we have more Indian companies, but we continue our efforts to attract Russian customers.

Is there enough room for both top Russian banks in India?

Sergei Bulayenko:
India is a large country with a population of 1.2 billion and annual GDP growth of 8%. The market for banking services is developing, and the most important factor is to find the right niche in this market.

There will be no competition on the part of Sberbank as both branches in India have approximately the same funding, which means similar limits per borrower. There will be enough clients. Alternatively, the two banks could offer syndicated loans. In this case they will be not rivals but partners, boosting trade between our countries.

How do you assess India’s investment climate and attitude to foreign banks, especially Russian banks?

Sergei Bulayenko:
India is friendly to all foreign banks, including Russian banks, but they are granted no special privileges compared to Indian banks.

What difficulties is VTB facing in developing its Indian business?

Sergei Bulayenko:
At this point, all of our specific problems have been resolved. Banks entering new markets, especially if they are pioneers from their country, always face many difficulties, including, in our case, getting the necessary permits and licenses, optimising the new branch’s operational structure in accordance with local practices, selecting and training personnel, finding the first clients, and, most importantly, concluding the first transactions.

Over the time we have operated in India, we have built a good team and created business processes adjusted to India’s practices.

How do you assess the prospect of moving to national currencies in Russian-Indian payments?

Sergei Bulayenko:
Moving to large-scale payment schemes involves the political will of both countries, apart from economic considerations.

Rouble-denominated operations could become an important area for our Indian branch in the near future. The first step on the way to expanding the use of the national currency as an international payment medium has already been made: our branch has been allowed to work with Russian roubles and make payments from India in favour of Russian companies.

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