Indian Banks have closed 25% of their foreign branches since 2019, But Why?

Indian banks have experienced substantial growth due to increased credit, urban consumption, and improved balance sheets. However, a noteworthy trend is the closure of overseas branches as banks concentrate on domestic expansion. As per a report, Indian Banks have closed almost 25% of their overseas branches since FY2019. In this article, we will have a look at various aspects of this closure of branches.

Decline in Overseas Branches

As of March 31, 2019, Indian banks had a total of 152 overseas branches. By 2023, this number decreased by 25%, reaching 113 branches. This shift is particularly evident among public sector banks (PSBs) and private banks.

Public Sector Banks

At the end of FY19, 10 Indian PSBs collectively operated 132 overseas branches. By the close of FY23, this number reduced to 100 branches, indicating a significant transformation in their international presence.

Bank of Baroda

Bank of Baroda has closed the highest number of overseas branches – nine, between FY19 and FY23. It now has 29 overseas branches.

State Bank of India

SBI is the second on the list, having shut seven branches. Its number of overseas branches has come down to 34 from 41. It also has the highest number of overseas branches, as of FY23. According to the bank’s official website, it began overseas operations in 1864. At that time, the Bank of Madras, one of the three Presidency Banks of British India opened a branch in Colombo. The Bank of Madras in 1921, merged with the Imperial Bank of India, which later became the SBI.

Private Banks

ICICI Bank shut the third highest number of overseas branches – five, bringing its number of branches outside India by almost half in five years. Among the private players, it has the highest number of overseas branches (six branches as of FY23).

The largest private sector bank in India, HDFC Bank has just three overseas branches. The bank maintained the number consistently since FY19, without any closure.

Reason for closure of foreign branches

Closure of foreign branches gained momentum following the massive Punjab National Scam of 2018. The Central government had ordered the closure of a large number of PSB branches overseas then.

Impact of Mergers

Sujan Hajra, Chief Economist & ED at Anand Rathi Shares and Stock Brokers, attributes the decline to recent consolidation of public sector banks. Post-merger, branch consolidation seems to be a significant factor influencing this trend.

Digital Banking and Efficiency

The rise of digital banking has diminished the need for a physical presence abroad. Additionally, stringent customer privacy and data protection standards in OECD countries have increased costs for banks operating overseas. Indian banks are increasingly prioritizing operational efficiency and profitability, leading to the closure of less profitable overseas operations.

GIFT City and International Markets

Vivek Iyer, Partner at Grant Thornton Bharat, emphasizes the profitability aspect and highlights the availability of international markets through GIFT City, reducing the necessity for traditional international branches.