State-run banks see bleak future, want to quit Hong Kong amid tougher rules under China

New Delhi: State-run banks such as United Bank of India (UBI) and Canara Bank among others have reportedly hit the pause button on their Hong Kong operations thanks to strict regulations, losses on trade financing business and Covid-related curbs that have caused huge damage to the island city as a global business hub.

Out of the eight state-controlled banks operating in Hong Kong, four have already discontinued operations or are at different stages of closing, and three others are actively considering the future of their businesses post-Covid. It is expected that the State Bank of India (SBI) will be the only public sector bank remaining in Hong Kong along with private sector lenders HDFC Bank and ICICI Bank, according to a report in ET.

UBI, for instance, has already relocated client accounts to its branches in Singapore and Australia and is waiting for a no-dues certificate from the Hong Kong Monetary Authority.

“We have stopped doing any new transactions and have already moved accounts. We expect the final clearance within the next couple of months,” a person familiar with the matter told the business daily.

Bankers are of the view that state-run bank relocations are because of multiple factors that have increased post-Covid. “Some are legacy issues like tougher regulations as the Chinese have taken full control. Others are more practical like the one-week quarantine in Hong Kong and hard lockdowns even more than two years after Covid,” a senior public sector banker told the publication.

Further, the banker mentioned that the primary reason is the weak trade financing business as flows have been channelled via Shanghai, adding that it is tough to deal with the Chinese authorities in the current geopolitics of the region.

“Many Indian banks made big losses due to the Covid-linked economic meltdown in 2020 as traders could not pay up and there is also a thinking that so many banks are not required there now,” he said.

Plus, Punjab National Bank (PNB) is working on a pullout plan while Canara Bank is at the advanced stages to shut its operations. Bank of Baroda has already closed its branch.

Bank of India and UCO Bank were placed under the Reserve Bank of India’s (RBI) prompt corrective action framework as a result of which the Hong Kong Monetary Authority also curtailed their lending.

The daily quoted AK Das, CEO of Bank of India, as saying, margins in the Hong Kong operations are very thin and it’s a very small part of our business. Like others, the bank also witnessed a rise in non-performing assets in 2020 but things have settled down now.

The bank last month applied for a licence to open a branch in Gift City in Gujarat if the approval comes, the lender will re-examine the need of the Hong Kong branch.

Worth mentioning here is that the state-owned banks relocations are in accordance with a government direction in 2016-17, which asked these organisations to ensure only one or two banks are present in these markets in a bid to conserve capital.