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India: Waiting game continues for foreign investment banks

Even in a bullish scenario where a Rajan-Modi dream team unleashes reforms – from PSL to the bond market – in an economic super-cycle that sees public lenders recapitalized, foreign investment banks could still be chasing rainbows in India. It is an over-banked market, with dozens of fee-hungry institutions jockeying for business.

In 2013, investment-banking revenue, for DCM, M&A and ECM, was a mere $397 million. ECM posted a paltry $58 million, compared with a total $758 million for 2010, though that was still relatively modest given India’s $2.1 trillion GDP. In fact, India represented just 6.9% of the non-Japan emerging Asia fee pool in 2013, compared with 55% for China and 7.2% for tiny Singapore.

Though there has been a spirited rebound in deal-flow since the elections – investment banks posted $252 million of revenue year-to-end-August – bankers are under no illusions about the state of the intensely competitive landscape, even as the likes of Barclays, RBS and Morgan Stanley have retrenched in recent years.

Citi, which posted 6.6% market share, second to Axis Bank with 7%, last year, is one of the few houses to have maintained a relatively stable franchise. Ravi Kapoor, head of corporate and investment banking, Citi India, says: “There are about 40 foreign and domestic investment banks competing for business, so it is an over-banked market, where the volumes, deal-sizes and margins are modest compared to other regions.

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