Indian banks forced to inject funds into UK subsidiaries

London: Some of India's biggest banks like the SBI are being forced to inject hundreds of millions of pounds to capitalise new UK subsidiaries under new rules. A recent tightening of regulations by the Bank of England for foreign banks offering retail services to UK consumers means that as many as 50 overseas lenders with branches in the country could face similar obligations, 'The Financial Times' reported.

India's largest bank, State Bank of India (SBI) and Bank of Baroda are among those affected by the new norms following concern at the UK's Prudential Regulation Authority (PRA) that depositors in the UK could lose out if a foreign lender collapsed and its home regulator prioritised domestic depositors.

"In some ways it is unfortunate. But it is an incremental cost that we will absorb and we will move on. While we could have done without it, we don't see it as discriminatory," Sanjiv Chadha, the UK head of SBI said. The bank is reportedly injecting about USD 300 million to capitalise a new subsidiary that it plans to set up by 2017 to house its UK retail banking operation, which has 10 branches and about USD 2.5 billion of customer deposits.

It is expanding in the UK by opening two new outlets in the London suburbs of Ilford and Hounslow and switching all its branches to seven-day opening. It recently launched new savings products and is moving into small business lending and buy-to-let mortgages.

More banks from outside the European Economic Area are set to adopt similar steps as PRA works its way through a 50-strong list of foreign banks from Asia and the Middle East allowed to offer retail banking services.

It is less concerned about wholesale banking operations being carried out by non-EEA banks in the UK via branches. The UK rules partly stem from the bitter experience of the 2008 financial crisis, when Britain had to compensate depositors who lost money they had stowed in branches of Icelandic banks that collapsed.