Japanese mega-banks grow in India

IFR Asia 1359 - 02 Nov 2024 - 08 Nov 2024
6 min read
Asia
Krishna Merchant, Prakash Chakravarti

Mizuho Bank, MUFG and Sumitomo Mitsui Banking Corp are looking to scale up their capabilities further in India amid strengthening ties between the world’s fourth and fifth-largest economies.

The three Japanese mega-banks are looking to capitalise on the robust growth they have achieved in the country in the past few years and are increasing their product offerings while also eyeing opportunities in the capital market.

“We are looking to grow our product capability, headcount, and our customer base in India as the country is seeing a golden period,” said Piyush Agarwal, senior managing director of India’s corporate banking department at Mizuho Bank. “We want the advances and deposits to grow even faster than before [and are] looking at both inorganic and organic growth opportunities”.

Mizuho Securities is hiring debt capital market specialists, while MUFG is awaiting approvals to set up a local DCM business.

“Once operational, we will be able to finance M&A through all channels and in the most cost-efficient way,” said Shashank Joshi, deputy CEO of MUFG India. “As a bank which is playing in size, we want to have the rupee capabilities as the rupee market is becoming very liquid.”

India’s inclusion in global bond indices this year and a booming private credit market, combined with its strong economic growth, have spawned a gold rush among debt market participants, especially the international ones.

MUFG is processing internal approvals for an asset-backed securitisation business in rupees or US dollars and is targeting its first deal this month, Joshi said.

India's ABS market is expected to grow rapidly as it gives banks an alternative funding route at a time when deposits are trailing credit growth.

Joshi said MUFG is now focusing on lending to large conglomerates and pursuing more complex transactions, such as structured deals, M&A financing and financial sponsor-driven deals. In the past, the bank had been more focused on state-owned enterprises.

“SMBC plans to expand its business by strengthening highly profitable products such as project finance and LBOs, as well as offshore business, while SMFG India Credit, which provides financial services to MSMEs and individuals as a non-bank, plans to enhance its business in rural areas and housing finance, as well as by bolstering its product portfolio and digital solutions,” said Hiroyuki Mesaki, country head and CEO for India at SMBC Bank.

Besides supporting the rupee funding needs of Indian blue chips and Japanese customers operating in India, the bank also offers foreign currency-denominated structured products and finance for projects, infrastructure, real estate and others to these corporates with an increasing focus on sustainability and ESG principles, he said.

Mizuho is also focusing on providing acquisition, structured and project finance solutions for customers in India and has hired people recently to work on such deals.

Mizuho Financial Group's four units – Mizuho Bank, Mizuho Securities, Mizuho Global Services and Mizuho Leasing – now employ 1,000 people in India, up from less than 500 three years ago.

MUFG's headcount has risen to 4,000, including MUFG Pension and Market Services (earlier named Link Group) which it acquired in May.

SMBC's headcount in India has grown by 12% over the last fiscal year to almost 400.

Committing more than before

The Japanese banks are expanding in India through multiple means, including taking stakes in local intermediaries, committing more capital or opening branches in Gujarat International Finance Tec-City, an offshore financial centre in prime minister Narendra Modi’s home state of Gujarat.

In August, MUFG invested Rs27.99bn (US$333m) in DMI Finance, a digital financial services business. In February, Mizuho spent Rs12bn on a 15% stake in small business lender Kisetsu Saison Finance (India), a subsidiary of Japanese financial company Credit Saison.

Mizuho increased its capital allocation to Rs101bn in November last year after the infusion of Rs41bn from its parent. Mizuho’s advances and deposits grew 44% and 29% year on year to Rs182bn and Rs218bn respectively as of March 31.

MUFG has committed around US$1.5bn to its India operations in the last two years, with the capital for the Indian business surging to Rs60bn as at the end of March from Rs24.6bn as of August 2022.

“We have grown by 50% already year on year, even though we are only halfway through the financial year,” said Joshi. MUFG India’s asset book was around US$15bn as of September.

In May, Sumitomo Mitsui Financial Group invested Rs13bn in SMFG India Credit, formerly Fullerton India Credit, through a rights issue after taking full control of the non-bank financial company in March.

“India is one of the key markets for SMBC Group, as called out in its current medium-term management plan (2023–2025), and will continue to be so going forward,” said Mesaki. “In FY23-24, our SMBC India business saw a year-on-year growth of 117.7% (both offshore and onshore). Our group level loan asset size is US$15bn.”

All three mega-banks have opened branches in GIFT City, starting with MUFG in August 2022, followed this year by SMBC in July and Mizuho in September. Mizuho is considering whether to apply for a foreign portfolio investors’ licence there after obtaining one through its Singapore unit last year.

GIFT City holds more appeal for the offshore loans business as the withholding tax is zero compared to 9% for dollar bonds, because of which the Japanese banks have been able to offer savings on interest costs of at least 60bp, the bankers said.

The three mega-banks have been more active as arrangers of the loan product than the bond variant in foreign currencies for Indian borrowers. (See Table.)