Given the $109.2 billion in assets potentially available in Indian private banking, Deutsche Bank's [DB] embryonic expansion plans in the country seem well timed. However, under new Indian banking rules, the competition is only going to increase. Domestic competitors currently have weak offerings and Deutsche Bank should move quickly to capitalize on its opportunity.
According to the German newspaper Handelsblatt, Deutsche Bank is currently in the process of compiling significant investment and expansion plans for the Indian private banking market. Further evidence of possible expansion is provided by Deutsche Bank's recent moves to strengthen the equity capital of its existing subsidiary in India, and its decision to develop a holding structure through which it can channel further funds.
The Indian private banking market is at a pivotal stage in its development. The government and the Reserve Bank of India, which regulates the banking sector in India, recently announced a liberalization of the rules surrounding foreign institutions' entry into the Indian market.
The new rules, which are likely to be rolled out in early 2005, will remove the current barriers to foreign investment and allow foreign competitors to acquire majority stakes in domestic competitors within three years. The regulatory changes essentially provide a risk-effective alternative to costly market entry through branch network development.
Deutsche Bank is attracted by the size of the market that is up for grabs in India, combined with an open marketplace with few domestic competitors. Even the largest domestic banks, such as ICICI, have relatively simplistic services in comparison to Deutsche Bank's. However, the German player is not alone in its Indian aspirations with many other foreign institutions attracted to the $109.2 billion of high net worth liquid assets up for grabs. HSBC is seeking to strengthen its position in India and is likely to increase its 15% holding in domestic bank UTI - a move that will be permitted under the new rules. ING is also looking to capitalize on a 44% stake in ING Vysya Bank.
Expansion into India is likely to be a positive step for Deutsche Bank since the country undoubtedly offers it real growth opportunities in the wealth management sphere. However unless it moves quickly, it may find itself playing a chasing game against some of its fellow Western heavyweights.