Emirates NBD, a leading Middle Eastern bank, is planning to establish a wholly-owned subsidiary in India to make its bid for IDBI Bank more attractive. The bank has received an in-principle nod from the Reserve Bank of India (RBI) to convert its existing branches in Chennai, Gurugram, and Mumbai into a wholly-owned subsidiary. This move will allow Emirates NBD to expand its operations in India and acquire a domestic franchise more easily.
A wholly-owned subsidiary model provides a foreign lender with unfettered branch addition and allows them to maintain capital in India, making it more difficult to repatriate capital back to home markets. This model also grants the regulator more comfort, as it ensures that the foreign lender’s domestic unit is better capitalized.
Emirates NBD is currently competing with Prem Watsa’s Fairfax Capital to acquire IDBI Bank. The establishment of a wholly-owned subsidiary is expected to give Emirates NBD an edge in the bidding process, as Fairfax Capital faces complications due to its existing controlling stake in CSB Bank India. The regulator typically does not allow one promoter to own multiple banking franchises, and Fairfax Capital is working out a special structure to ensure that IDBI Bank and CSB Bank are held separately.
The bidders are expecting the process to close by the end of this financial year or early next year. However, they are also watching for any developments on the employee side, as IDBI Bank’s employees are still strong and may oppose foreign investors. The employee unions may cause some impediments in the closure of the deal or any retrenchment at the bank.
Other large foreign lenders, such as HSBC and Standard Chartered Bank, have opted out of the wholly-owned subsidiary model due to double capital charges. However, smaller lenders like DBS Bank and State Bank of Mauritius have used this route to expand their operations in India. Emirates NBD’s decision to establish a wholly-owned subsidiary demonstrates its commitment to expanding its presence in the Indian market and acquiring a domestic franchise.