India’s Axis Bank cleared to open first China branch

Axis Bank, India’s third-largest private sector bank, is set to open its first branch in China within the next three months, the latest indication of closer financial links between Asia’s two largest emerging economies.

ICICI, India’s largest private bank, is also expected to open its first Chinese branch later this year, in a sign that leading Indian financial institutions are attempting to capitalise on growing trade between the two nations.

Axis chief executive Shikha Sharma told the Financial Times that her institution has received permission from regulators in both countries to open a full branch in Shanghai.

The move would make Axis the first Indian private sector bank to open a branch in the country, and allow it to begin building a new India-China corporate banking business.

“There is a lot of trade between China and India, so there is a lot of requirement for trade finance and project finance,” she said.

The banks’ Chinese expansion plans follow a series high-profile deals in which large Indian industrial companies, including billionaire Anil Ambani’s Reliance group, have sought to purchase Chinese equipment or secure relatively inexpensive Chinese bank funding.

“China is supplying a lot of equipment to India in areas like power,” Ms Sharma said. “It isn’t easy getting a licence there. We have been waiting for this permission for a long time, and we are pleased to have it.”

Trade between India and China is projected to top $100bn by 2015, according to the Confederation of Indian Industry, a trade body, up from $66bn last year.

“Rising trade flows between India and China is opening up huge opportunities for things like working capital loans and trade export financing, along with fee-based services such as letters of credit,” said Ravi Trivedy, a consultant and former head of banking at KPMG India.

Private banks like ICICI and Axis control about a fifth of India’s banking market by deposits, while state-backed institutions such as State Bank of India, the nation’s largest bank, control nearly three quarters of the market.

A handful of state-backed banks such as SBI have been allowed to open Chinese branches in the past, but until recently the Reserve Bank of India had been unwilling to give private institutions permission to enter the market.

Until now both Axis and ICICI have operated what are known as representative offices in China, which allow them to keep in touch with regulators and clients, but not to provide any type of transactional banking services.

A spokesman for ICICI said the bank had received RBI permission “to upgrade its representative office to a branch in China” and was now “under discussions with the Chinese regulatory authorities for necessary approvals”.

Analysts expect the banks will now seek to provide services largely to Indian companies looking to bring goods to and from China, with a focus in particular on imports in areas like industrial equipment and machinery.

“At the moment the private banks have been asked by their boards ‘why the hell aren’t you in China?’, and now they are trying to get in there,” Mr Trivedy said. “Everybody is clearly looking at this as a big, big opportunity.”