August 13, 2024 — With economic optimism running high at home, Indian companies are looking abroad for opportunities to expand. As they do so, they are turning to both global and domestic banks to help support new international growth strategies.
Corporates in India are moving to capitalize on bullish domestic macro conditions by expanding into international markets. Approximately 83% of large India-headquartered corporates now employ at least one bank for cross-border trade and payments—a metric that serves as a good proxy for international operations. That share is up from 71% only two years ago.
“Over the past 12 months, we have seen an increase in activity by large corporates in India across various outbound, cross-border corridors into other markets within the Asia-Pacific region, into Europe, and North America as well,” says Ruchirangad Agarwal, Relationship Director and Head of Corporate Banking – Asia and Middle East at Coalition Greenwich, and co-author of Corporate Banking in India Grows as Cross-Border Activity Increases.
It is not only the largest companies in India that have sets their sights abroad. Roughly three-quarters of India-headquartered middle market companies now employ at least one bank for international needs, with most companies utilizing these providers for traditional trade, cross-border payments, and receivables to and from their overseas suppliers and clients.
Domestic Banks Fight for Cross-Border Flows
Historically, corporates in India have turned mainly to foreign banks to meet their international banking needs, since these banks had the global footprint, international networks and affordable funding needed to support cross-border business. While foreign banks are still dominant in international banking, large domestic banks are now competing for a larger share of cross-border flows across both trade finance and international payments, especially from India-headquartered firms.
“While foreign banks bring a robust network and product capabilities, two strong trends are helping Indian banks compete,” says Ruchirangad Agarwal. “First, Indian banks’ digital capabilities are increasingly on par with those of foreign banks. Second, thanks to a combination of higher interest rates internationally and a slightly reduced lending appetite on the part of some foreign banks, Indian banks have been able to compete effectively on pricing and balance sheet.”
Indian Corporate Banking Revenues on the Rise
Increasing demand for international banking services should help boost revenues across the Indian corporate banking landscape. Banking industry revenue pools increased 4% in calendar year 2023, following a 15% increase in 2022. While cash management exhibited strong growth on the back of momentum from higher rates in FY 2023, that business is expected to temper somewhat as peak rates level off. Investment banking pools registered double-digit gains as primary activity in capital markets increased. Lending toned down a bit as corporates focused on strengthening balance sheets due to rates remaining elevated.
Looking ahead, revenues from cross-border business should represent a growing contribution in coming quarters.
“Companies need banking services to support all this international growth, mainly on the traditional trade side but also increasingly on receivables finance as supply chains realign within Asia,” says Ruchirangad Agarwal.
Corporate Banking in India Grows as Cross-Border Activity Increases includes a breakdown of Indian corporate banking revenue pool across lending, cash management, trade finance, investment banking, and markets, an analysis of the accelerating international expansion among Indian corporates, and a discussion of Indian companies’ sustainability goals and policies.