The ins and outs of international investment banks in India
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The ins and outs of international investment banks in India

Domestic banks say that even if foreign rivals haven’t given up the ghost already, they face a tough future in India. International banks see a brighter future beyond meagre fees as Indian markets mature. They can’t both be right.

By Rashmi Kumar


When Asiamoney meets a senior investment banker at an international bank in Mumbai, he gives the usual preamble about being swamped with work. When probed further, he explains that he had an equity capital markets pitch meeting that morning, where he was one of a multitude of bidders. 

What annoyed him even more than the number of firms vying for the deal was that it was going to pay a pittance. 

“It is what it is though. Unfortunately, we’re one of the 19 banks pitching for the deal anyway,” he sighs. 

Competition is undoubtedly a challenge for banks in any country, but it is absolutely fierce in India, where the infamous one rupee token fee — equivalent to about 1.5 US cents — for investment banking mandates for state-owned companies is a reality. 

In such a tough environment, how can international banks make ends meet? And more importantly, is it even worth trying? For while Indian banks have no option but to stay in India, international banks have a choice – and some of them have quit already.

“The very interesting story in India over the last 10 years has been the steady replacement of foreign capital with domestic capital, and as a result the steady displacement of foreign banks by domestic banks,” says Mumbai-based Saurabh Mukherjea, chief executive of domestic investment bank Ambit Capital. “The two stories are linked to each other.”

Mukherjea is not alone in detecting a shift in the foreign banks’ operations, particularly in Indian investment banking. 

Economic growth, with per-capita income rising from $500 about 20 years ago to $1,600 today, has paved the way for the financial services industry to open up and expand. But banks, especially the international ones, are finding the rewards elusive.

International banks have “undoubtedly scaled back”, says a head of investment banking at a private-sector lender, giving firms like his more opportunities. 

One founder of a domestic wealth management practice says foreign banks don’t have “much of an impact” anymore as far as his business is concerned. 

The head of a family office at a local firm reckons global banks “have vacated” India. 

Foreign bankers dispute this, but the numbers tell an important tale. 


Mihir Doshi, chief executive of Credit Suisse’s India business

In 2007, eight of the top 10 investment banking revenue leaders in India were international banks, alongside Kotak Mahindra Bank and Axis Bank. 

Bank of America Merrill Lynch led the way with net revenues of $83.4 million, followed by Citi with $80.2 million and UBS and Deutsche Bank with $63.2 million and $47.1 million, respectively, according to Dealogic.

Kotak was fifth with $39.8 million in revenues, followed by JPMorgan, Axis, Morgan Stanley, Nomura and NatWest Markets, with each earning between $25 million and $35 million.

Fee pools in investment banking in 2007 were between $750 million and $1 billion for a market that everyone thought was just about to take off, say bankers. 

But it didn’t. Activity slowed after the global financial crisis and did not come back. 

Core investment banking revenues in India for the top 10 banks had fallen to $344 million by 2016, before rebounding to $456 million last year, Dealogic data shows. Last year was a relatively good one thanks to a pick-up in equity markets. India’s benchmark Nifty 50 Index soared nearly 30% in 2017, propped up by hopes of economic reform and strong earnings growth – and driving a bumper crop of share offerings worth $30.7 billion, including a record $11.7 billion in IPOs, according to Dealogic.

“What has happened in the past five to seven years is that we’ve seen a backtracking of globalization of banking, not just in India but overall,” says Rashesh Shah, chairman, managing director and chief executive of Edelweiss Group, a financial services conglomerate.

“The rules of every country are different and the context of every country is different. So, what worked until 2008, which is being a large global bank in 180 countries in the world, became very complex. Because of that complexity and compliance, we’ve seen global banks shrinking in India and in other emerging markets,” Shah says.

“The large global banking days are over,” he adds, “and largely because local rules have changed and the local markets have evolved a lot. Especially in India, where you have to be very sensitive to the local cost structure.” 

Does Shah have a point? Are international banks in India losing steam? 

KVS Manian, president of corporate, institutional and investment banking at Kotak Mahindra Bank, agrees that foreign banks have retreated from the country.

“Most of them have not had a consistent enough strategy,” he tells Asiamoney from the lender’s headquarters in Mumbai’s Bandra Kurla Complex, which houses many of the country’s leading banks. “They come (into) products and go (from) products. It’s the result of a combination of regulatory constraints and their own strategy. 

“Plus, many [banks] have had to shrink their international balance sheets to take care of regulations in their domestic market. This has meant foreign banks have not expanded as much as one would have thought they would.” 

And yet, international banks still feature among the top earners: last year, JPMorgan led the way for investment banking revenues with $72.9 million, followed by Citi with $30.1 million and Axis Bank with $27 million, according to Dealogic. 

ICICI Bank and Morgan Stanley were fourth and fifth, respectively, with net revenues of $20.5 million and $19.6 million. The next five banks all earned between $11 million and $20 million. This suggests the problem is one that affects all investment banks in India, whether they are local or international. 

Client base

One senior investment banker puts foreign banks operating in the country into three categories. The first are the monoline banks, which only cover select clients, have limited on-the-ground resources and are willing to be patient for the business to come through from their chosen client base. 

He puts firms like BAML, Goldman Sachs, Morgan Stanley and to some extent JPMorgan in this group. 

In the second bucket are firms that have realized over time that India is not meaningful to their business in the Asian context and have therefore reduced their focus from the country. The third, he adds, are the ones that are pretty much mainstream banks and have a large presence in India.

In the latter category, most bankers in India – whether local or international – rate Citi’s Indian operations across wholesale banking as the best of the foreign banks and a real competitor to the local players. 

KVS Manian, 
Kotak Mahindra Bank

League tables only capture a small proportion of the revenues available in Indian wholesale banking, which includes global banking and markets, treasury and trade solutions, securities and fund services and research.

Ravi Kapoor, head of corporate and investment banking at Citi India, says: “As a mainstream foreign investment bank, competing with other full-scale banks, we need to do many deals for our coverage clients across the board to maintain our leadership and league table dominance, as well as to defend our wallet share. That has been our business philosophy.”

However, even Citi’s investment banking franchise has seen better days. In 2007, it h

ad core investment banking net revenues of $80.2 million, giving it a market share of almost 11%. In 2012, this slipped to $26 million and a 7.7% market share. Last year, that market share was 6.6%, according to Dealogic. 

While the bank has consistently been among the top three investment banking revenue earners in India over the last few years, the market dynamics have undoubtedly changed. Standard Chartered, another example, earned revenues of $11.5 million last year and a market share of 2.5%. Five years earlier, it had $18.1 million in revenues and a 5.3% share. 

Does that mean investment banking revenues and fees will be in continual decline? That depends who you ask.

Kapoor is optimistic that both the fee pools and volumes will expand. 

“But while volumes expand, we will witness further contractions in gross margins,” he says. “At present, deal sizes, particularly in the ECM space, are relatively small, barring a few. Typical ECM deal sizes are still $100 million to $200 million. Therefore, banks will have to do a combination of a few large deals and a reasonable share of the mid-sized deals to meet their plan numbers and maintain wallet shares.”

Another senior investment banker at a foreign firm adds: “Some Muppet offered me 50 lakhs [equivalent to Rs5 million, or $77,000] the other day and I turned it down. I’d like to believe that 2% on M&A is a good fee to get. But an entrepreneur or corporation might think differently. 

“But why should the entrepreneur or the corporation be willing to give you more? Even in the private-sector space, as long as the competition remains as strong as it is, plus the entrepreneur thinks he’s strong, why will they pay more?” he asks. “Some of the fee levels you see in Hong Kong or China are pretty much unheard-of in India and will remain so.” 

That has naturally had some impact over the years. In the middle of 2016, Royal Bank of Scotland decided to wind up its corporate, retail and institutional operations in India — part of its efforts to steadily sell non-core businesses globally as it retreated after its ill-fated expansion spree before the financial crisis. ING Bank, which in India operated through ING Vysya Bank after its merger with Vysya Bank in 2002, completed the sale of ING Vysya Bank to Kotak in April 2015. Barclays shut its cash equities business across all Asian countries in early 2016, including in India, while Standard Chartered closed most of its equities operations in the country in 2015. 

Despite the upheavals, some international firms strongly believe that India is core to their operations, notwithstanding the decline in revenues and intense competition for business.

Capital markets

Mihir Doshi, chief executive of Credit Suisse’s India business, says he is seeing positive momentum in the financing business, an important aspect of the investment banking and capital markets franchise in addition to ECM, DCM and M&A.

“We are differentiated due to our ability to provide bespoke and creative financing solutions that use our balance sheet smartly,” he says. “We have been successful in combining our financing and traditional IB platforms.” 

He adds that the fee pool is large enough when you combine financing, ECM, DCM and M&A, and the private placement business.

The bank has stepped up its game. Last year, Credit Suisse completed nine ECM transactions in India for credits of $715 million, Dealogic data shows, up from $215 million in 2016. On the DCM front, its market share in international public dollar bond issuance was 2.8% last year, rising from around 2% in 2016.

But revenues have been declining. Credit Suisse earned $18.9 million in investment banking revenues last year and had a market share of 4.1%, down from $27.8 million in revenues and an 8.1% market share in 2016. But in 2015, it had a 4.1% market share, and the year before that 5.5%.

Anuj Kapoor, head of corporate client solutions for India at UBS, says the Indian banking industry is so dynamic that business strategies need to be constantly rethought. 

“It is clear that after the global financial crisis, banks needed to redefine their strategy — whether in terms of geography, products or people,” he reckons. “For banks in India and the region, the key metrics over the last few years have been costs and headcount, but the focus now seems to be coming back to revenues. They are accurate near- to medium-term indicators of commitment and a safe barometer as to who will or will not retreat from the country.” 


A chief executive of a domestic bank, however, reckons cost structures for international banks will remain key when deciding whether or not to bulk up in the region.

“If they have just one snazzy office in Mumbai, then they get restricted to the top Nifty 50 index companies and to the big equity raises and M&A,” he says. “But it’s the mid-market companies that will become bigger and bigger over the years and will provide business later. If you don’t start building relationships with them now, you’ll lose out later. 

“I haven’t seen any single foreign bank that is betting big in India and looking to spread its wings,” he adds. “It’s not easy of course to build a big business here, but it’s a burgeoning economy.” 

A Mumbai-based banker at a large foreign firm admits: “Many of us are going back to an old model that foreign banks used to have 10 to 15 years ago: to focus on our home market while playing in niches. That’s what we are trying to do in India.” 

Paying fees

What niches do foreign banks have in India? It is a difficult market to muscle into. “Most corporations don’t like to pay for advice – they’ll pay for balance sheet but not for advice,” moans one banker in Mumbai.

“Large Indian corporations are notorious for not paying fees,” mutters another. “We always look at the US market and think how well they are getting paid.”

The story of how State Bank of India paid its bankers a token fee of one rupee for arranging a $2.3 billion follow-on share offering last year is the stuff of financiers’ nightmares – even though the concept of the one rupee fee has been around for many years. 

Bankers reckon fees for India last year averaged less than 1% of deal proceeds, compared with 2% in Hong Kong and more than 3% in New York. Bankers say the low fees on offer in India mean underwriting deals don’t make any commercial sense.

According to Ambit Capital’s Mukherjea, there are two areas where the displacement of foreign firms has already happened – in private banking and fund management. 

For now, he adds, if ECM deals are worth $1 billion or more, foreign banks play an important role. They are also relevant when it comes to big-ticket inbound M&A. But he reckons that in the next few years, India’s per-capita income will rise from $1,600 to $5,000. In line with that, “the ECM piece will become entirely Indian investment bank-dominated, because the local savings pot will be so deep that the need for foreign capital will go away,” he says. 

But Credit Suisse’s Doshi is sceptical: were this hypothesis true, then global banks should have all but disappeared from countries like Australia, Japan and South Korea, he says – places where international houses still play a large role in the investment banking landscape. 

“Issuers do not tend to differentiate simply between foreign versus domestic banks,” he says. “They differentiate based on quality, because ultimately it is about the quality of research, sales, distribution and relationships.” 

“In terms of banking business models, one can have a focused, niche offering within a bulge bracket firm, with a lower cost base, or have a broader offering across all investment banking product categories, which of course means a higher cost base,” says Doshi. “For a country of this size, having a niche offering is not as viable. However, a boutique model with a focus on M&A or certain products can offer some value add.” 

Kotak’s Manian says foreign banks are not a “big threat” to private-sector banks. “There is a niche available for them, and some of them are playing that niche,” he says. “But finally it is niche, so their market share cannot dramatically improve.” 

One of the senior bankers at an international firm admits that is the case – which makes the clout shift to the domestic banks. 

“Part of the reason why people are worried about international investment banks’ sustainability in this country is because they play in narrow and niche products,” he says. 

“To take advantage of the India story, the commercial banks have seen lending, retail and the whole corporate banking growth, which undoubtedly is a big part of it. That’s why they have done well. Domestic banks all stand out. I’m jealous of them, in a nice manner, because there is more power to them.” 

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