Business

Friday September 18, 2009

Analysts positive on move by Indian banks

By DALJIT DHESI


But it may lead to ‘some form’ of price war in short term

PETALING JAYA: The move by three Indian banks to set up a consortium to undertake commercial banking operations in Malaysia is positive although it may cause “some form” of a price war in the banking sector in the short term, analysts said.

A senior analyst from a bank-backed brokerage told StarBiz that in the short term, the entry of these foreign banks might not be healthy due to the possibility of an an unnecessary price war in the industry.

With more players in the market, banks would need to “undercut” each other in terms of pricing, the analyst said.

Dr Yeah Kim Leng says the move will benefit consumers

Citing a recent example in Singapore, an analyst from a foreign research house said there had been a price war between the State Bank of India and HSBC in mortgage loans.

The analyst said she anticipated a similar scenario if the consortium were to commence operations locally.

However, both analysts agreed that in the long term, it would benefit the banking sector and consumers, especially if the foreign banks were well established.

Their presence in the long run would enhance transfer of expertise, product differentiation and innovation in the industry, they said.

The senior analyst said for local banks to be competitive, they should go regional and cited the CIMB Group as an example.

He added that Bank Negara should seriously scrutinise the entry of foreign players in the country to ensure that only the stronger and quality ones were allowed in to add value to the industry.

Citing the Singapore Business Times, the Malaysian Insider web portal yesterday noted that three Indian banks had set up a consortium to undertake commercial banking operations in Kuala Lumpur later this year.

The three – Bank of Baroda, with a 40% stake in the consortium, Indian Overseas Bank (35%) and Andhra Bank (25%) – hope to set up India BIA Bank after securing the approval of India’s central bank, according to the report.

Bank of Baroda, which has a representative office in Kuala Lumpur, could not be reached for comment.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng views the entry of foreign players into the local market as positive for the banking industry.

“First, the setting up of such a consortium in current times signals confidence in the local banking industry and shows the economy is in the midst of recovery. Second, it will promote trade and investment between India and Malaysia and enhance bilateral ties and third, it will benefit consumers as healthy competition will provide consumers with more choices in terms of products and services,’’ he said.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said the emergence of foreign players in the local market was part of the Government’s efforts to liberalise the services sector.

“The financial services sector is an important component of the services sector. Currently the services sector make up about 55% of the country’s gross domestic product compared with about 70% in developed countries,’’ Zahidi said.

Under the financial services sector liberalisation which was announced in April, the Government plans to issue nine new banking and insurance licences between now and 2011.

It had also raised, with immediate effect, foreign equity thresholds from 49% to 70% in investment banks, Islamic banks, insurance companies and takaful (Islamic insurance) operators.

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