Why Foreign Firms Have Bit the Dust in the Financial Sector 

Investment banking can be quite lucrative if you know what you're doing, but it also comes with its fair share of risks.

Regulators played a very important part in this. 1. The logic of having compulsory rural branches for new branches in urban areas definitely curtailed the branch expansion strategies of foreign banks. Added to this, even ATMs needed RBI license. This was a big disadvantage because prior to 2008 the foreign banks were flush with lot of capital and were not having restrictions in hiring people or branch expansion. Once the Indian banks became big enough in size and the technology became cheaper, RBI removed these barriers. 2. Accusing the foreigners of being impatient is unfair as the likes of HDFC bank, ICICI bank or Axis bank are majority owned by foreigners. They have been holding on to their stakes for decades. 3. As an ex-banker in both domestic and foreign banks, I can say that the fear of regulator and regulations is more in foreign banks. 4. Many foreign banks and financial institutes developed products suited for India. For example, the concept of SIP was brought by Franklin Templeton and were willing to take as little as 500 rupees and they invested heavily in distributor education when none of the Indian companies did. 5. The logic of Indian regulators seems to be fairly simple, give your capital and have no say in the management and then we will allow you to make money. 6. Apart from the ESOPs, the Indian banks did very little for the employees. Compared to foreign banks, the salaries were lesser while the targets were same or higher. The aggressiveness of every Indian retail bank in pushing insurance products that generate higher commissions is much higher than any foreign bank. Thus a lot of mis selling happens in Indian banks. While one case of HSBC got highlighted, 100s of such cases exist in Indian banks. SBI sells their mutual fund products to people like fixed deposits. 95% of their MF commissions come from only one asset management company, so much for diversification and the regulator talking about investor friendly measures. In fact barring, HDFC and Kotak, most of the Indian banks sell their own mutual fund company products over 70% of the times. 7. If the regulator wants fair treatment for investors, they should cap the % of sales by banks in their own subsidiary mutual funds. Since this means loss to big banks, it never gets addressed. 8. Indian employees in foreign banks have reached the highest echelons of management globally. If they could do well in different countries across the world, they could do well in India too provided there is a level playing field. With a loaded dice, it is better to be silent partners and enjoy the returns of equity rather than doing the actual business. This can go on and on. The fact is that many countries in the world do not want to give control of the financial sector to foreign companies and so did India.

1. You mentioned that assumptions about the surging Indian middle class and demand for financial services did not materialize as expected. What specific factors or events led to this different reality? 2. Given the impatience and short-term outlook you attributed to foreign financial firms, do you believe there were any cultural or operational differences between them and domestic Indian companies that contributed to their contrasting fortunes? 3. Looking ahead, do you foresee any potential challenges or threats to the dominance of Indian firms in the financial sector, or do you expect the current trend to continue?

Good that foreign institutions have not stepped in. Our market is too small and any huge liquidity cant be meaningfully engaged. But wait the recent 50/50 joint venture of Jio and BlackRock smells bad for our market specially for retailers as ambani has a bad reputation of undercutting and affecting segments he enters like mobiles and to top it blackrock whose aum is 3/4 times our GDP can disrupt to get american biggies in hedge funding to close small shops or wash them out. Why would govt allow black rock to enter, ambani pressure?! Already our desi brokers are getting scared what jio is going to undercut. Your thoughts on this a retailers opinion and fear.😮😮

Debashis ji, we like for your unbiased, no mincing words, cutting the BS approach. Can you pls do a video on sector rotation in India pls

Absolutely great video. A wealth of information. Thanks a lot 🎉🎉🎉

Excellent analysis, thank you!

Thank you Sir

It's high time local companies take over the financial sector in India - these foreign Private Equity firms would have used "leveraged buyouts" to take over companies, load them up with debt and then strip them of their assets. Legitimate businesses in the US markets have been completely destroyed, by these PE firms, and it is important that they should not repeat these same destructive policies, in other countries.

Hi. Would love to hear your views on why Blackrock entered India piggyback with JIO. Will this be an aberration or we see other's following MDA footstep.

Crux is what you said in the End. Impatience & short term view or Quick growth idea faled them. Also , may be, high wage structure in Foreign Bank demand high value clients, which are few and soight after by many.. Seems DBS from Singapore, having taken over local abnk, may succede in medium to long term.

No mention of branch licensing requirements and their inability to open new branches? This meant they couldn’t do retail banking at all. Even foreign bank employee salary accounts are with an HDFC bank! The only thing they can do are large corporate lending (and lose money over the cycle) and even then they don’t get the salary accounts and other retail juice! It is downright disingenuous to say this is because they were impatient. The same goes for MFs - when underhand commission structures with agents and bancassurance are the largest channels why’d they do well? The only thing they can still do without unfair disadvantages are investment bankIng and ECM DCM where they still lead the league tables in India A little knowledge is a dangerous thing

What about Standard Chartered?

“If you want to be a credible political force in this country, you must be pro-business because the private sector creates incremental jobs. Business-government interaction is unavoidable, and any political force of any substance will have a shot at the government at some time or another and use good relations with businesses to do good to the citizens. Probably some wisdom has dawned on the Opposition,” said U R Bhat, co-founder of Alphaniti Fintech. On 4th June if Modi is kicked out , see how this U R Bhat will suddenly see "wisdom" everywhere.

Why Foreign Firms Have Bit the Dust in the Financial Sector Introduction: The video discusses the decline of foreign banks and financial firms in India over the past three decades, despite initial predictions of their success in capturing the emerging Indian middle-class market. It contrasts the struggles of foreign entities with the growth of domestic players in the banking, mutual funds, and insurance sectors. Key points: 1. Banking Sector: - Foreign banks like Citibank made arrogant comments about exploiting Indian public sector banks in the 1990s. - However, over time, foreign banks' presence has dwindled, with Standard Chartered having only 100 branches and HSBC having just 26 branches. - Major global banks like JPMorgan Chase, Bank of America, Mitsubishi UFJ, and BNP Paribas have minimal or no operations in India. - Domestic banks like SBI, Axis, ICICI, HDFC, and Kotak have become the dominant players. 2. Mutual Funds: - Among the top 10 mutual funds, there are a few foreign joint venture partners, but they play a minor role. - Most funds are entirely Indian-owned, with Nippon India being the only foreign asset management company in the top 10. - Major US mutual funds like Morgan Stanley and Fidelity have exited India, while Templeton is struggling to grow. 3. Insurance Sector: - Foreign insurance companies operate as joint venture partners due to the technical nature of the business. - However, these ventures are controlled by Indian management. - The Life Insurance Corporation of India, a government company, still dominates the life insurance business. 4. Reasons for Foreign Firms' Struggles: - Assumptions about the surge in middle-class prosperity and demand for financial services did not materialize as expected. - The Indian economy continued to face mismanagement, poor productivity, corruption, high taxes, and crony capitalism, hindering infrastructure growth. - The global financial crisis in 2008 further weakened foreign firms, leading to their exit or reduced presence. - Indian companies persevered through the challenges and steadily gained market share. - Domestic players were better positioned to scale up when opportunities like digital onboarding of customers arose. Conclusion: The video attributes the failure of foreign financial firms in India to their impatience and short-term outlook, contrasting with the perseverance of domestic companies. It highlights that while foreign firms have struggled in financial services, their presence in other sectors like personal products and manufacturing remains strong.