India's largest bank is shutting down some international branches to save money

After closing six overseas branches since 2016, the State Bank of India (SBI), India’s largest bank by assets, is set to shut an additional nine foreign branches. The move is part of the what the bank’s managing director, Pravin Gupta, terms “the rationalisation of overseas operations” - a euphemism for saving money.

The need for cost cutting is obvious. India’s bad loan problem is getting worse, and public-sector banks are bearing the brunt of it. In addition, the rupee is hovering around an all-time low and foreign portfolio investors are losing confidence in India.

However, instead of exiting countries completely, SBI will mostly cull branches in countries where it operates more than one branch, like South Africa or Bangladesh. It will merge the operations of the defunct branch with the remaining branches to ensure continuity.

A sector-wide move

The plan has been in the works for a while. In November 2017, shortly after announcing a $32 billion recapitalisation plan for the sector, the government instructed all of India’s state-owned banks to assess the feasibility of their international operations.

India’s state-owned banks collectively have 216 branches and offices in operation overseas, a bulk of which belong to State Bank of India. Some of these outlets act as full-fledged branches while some act as representative offices, which have lesser regulations to comply with.

The branch-cutting exercise has gained momentum in the wake of the Nirav Modi scam. Modi and his associates used fraudulent credit guarantees from Punjab National Bank to obtain loans from the overseas branches of state-owned banks like State Bank of India, Allahabad Bank and Canara Bank.

In March 2018, Rajiv Kumar, the Secretary of the Department of Financial Services, said that 35 overseas branches of state-owned banks were in the process of being closed, while the feasibility of an additional 69 were being assessed.

#ResponsibleBanking; PSBs to consolidate 35 overseas operations without affecting international presence of PSBs in these countries; 69 ops identified for further examination. Move towards cost efficiencies and synergies in overseas mkt @PMOIndia @FinMinIndia @PIB_India pic.twitter.com/tVYMcEmXK3

— Rajeev kumar (@rajeevkumr) March 1, 2018

The branches in question, are mostly unprofitable or in markets where business is difficult to come by. In doing so, the government hopes that this will free up capital for state-owned banks to do two things- to extend loans to business clients and provision for any further bad loans.