Post PNB fraud, foreign operations of PSU banks to be rationalised

With overseas branches of public sector banks playing a major role in the PNB scam, the government has now cracked a whip on international operations of these banks. The finance ministry has asked public sector banks to consolidate 35 overseas operations without affecting international presence of government banks in these countries.

“The rationalisation of overseas branches is aimed towards cost efficiencies and synergies in overseas markets,” Department of Financial Services Secretary Rajiv Kumar wrote on Twitter.

Banks have been asked to close non-viable operations for cost efficiencies. Also, the finance ministry is pushing for consolidation of operations in the same market. Banks have also been asked to consolidate equity holdings in joint ventures where more than one state-run bank is a stakeholder.

Further, all existing 216 operations of state-run banks in other countries will be examined to check for possible consolidation.

Sixty-nine operations have already been identified for possible consolidation. This includes bank branches, joint ventures, subsidiaries, remittance centres and representative offices.

SBI has already undertaken a major restructuring exercise of its operations in the UK. SBI's UK operations will transform into a subsidiary named State Bank of India UK Limited from April 1, in compliance with wider ring-fencing of capital requirements by the Bank of England.

The move will mean that all retail branches of SBI in the UK will fall under a new UK-incorporated banking entity instead of their previous status as overseas branches of the Indian entity.

This came after UK banking regulator Bank of England's Prudential Regulation Authority (PRA) directing foreign banks a few years ago to move from their retail status as overseas branches to independent entities in order to protect depositors in the UK from fluctuations in foreign markets.

In the PNB fraud case, overseas branches of PSU banks were involved in lending against the LOUs issued by PNB to Nirav Modi's firms. Foreign branches of PSU banks involved have apparently been asked to submit a report to their respective headquarters to assess if there were any lapses.

International branches have been under the watch of the finance ministry for some time now, especially after the Gupta scam in South Africa broke. A few days ago, Bank of Baroda announced that it was shutting down its operation in South Africa. The South African Reserve Bank had imposed a fine of Rand 11 million for lapses in compliance.

The exit from South Africa has been linked to BoB being the banker to the Gupta family, which reportedly took undue advantage of their connections with South African President Jacob Zuma. South African authorities have alleged that large sum of money was transferred to the Zuma family which is now under investigation.