Andhra Bank, BoB, IOB in JV for bank in Malaysia

Hyderabad-based Andhra Bank along with its public sector peers Chennai-based Indian Overseas Bank and Mumbai-based Bank of Baroda are planning to float a unique joint venture bank in Malaysia, Andhra Bank chairman and managing director RS Reddy said in a interview.

The bank will be locally registered in Malaysia and Bank of Baroda will be holding the maximum stake, he said.

“We have not finalised the stakes but bank of Baroda will have maximum stake because they are a bigger bank and have an international presence. (For me) it gives an advantage of working in a foreign country without opening a branch, so I can train my people and expose them to foreign environment,” Reddy said explaining the logic for the venture.

Among the three, Bank of Baroda with 74 offices in 25 countries including a representative office in Malaysia, is the most experienced in international banking. Andhra Bank as of now has only two representative offices, in Dubai and Jersey City in the US.

Reddy said the new bank in Malaysia will be a different company altogether with senior people appointed from among the three banks in India. “Malaysia has a huge growing economy and Indian bank presence is almost not there so we thought it was a good opportunity to go and start,” he said.

The idea is unique because Indian banks have never had such a joint venture and whatever corporation public sector banks have attempted has failed in the recent past.
For example the triple bank alliance between Oriental Bank of Commerce, Indian Bank and Corporation Bank announced with much fanfare in October 2006 hasn’t been able to take off and is now almost dead as heads of the bank either moved on to larger banks or retired.

Reddy said the idea of the venture is so that risk can be shared and capital will be from equity investments raising deposits. Suresh Ganapathy, banking analyst with Deutsche Bank agreed the risks would be diversified because of the joint venture but questioned the logic of going abroad when domestic business was doing fine and international business was under pressure.

Reddy said all three bank boards have approved the venture and the Reserve Bank of India permission has also come. “Mutual memorandum of understanding is to be signed and then we will apply to the local government there,” he said. Reddy is expecting the go ahead from the Malaysian authorities to come within the next six months.

“By the end of 2009 we will be able to get a branch there. There is a huge market for Indian coporates, ethnic business and local Indian number is also huge, that will be the initial stage and afterwards we can do business there,” he said.

Bck home, Reddy has applied for 115 branches with the RBI, 100 branches are outside Andhra Pradesh. Currently, Andhra Bank has 1,400 branches and only 400 of which are outside the state and Reddy wants to correct that.

“Till now we concentrated only in Andhra. I have 400 branches in other regions of which 200 are in Orissa, 40 in Tamil Nadu, 40 in Karnataka and 20 in Kerala. So only 100 branches I have in the rest of country now, that is very small,” he said.

He expects the open at least a 100 branches this year alone including the severely under banked north eastern states. “We want to grow they can add much higher volume of business compared to existing branches, so that will be the focus this year. This can be a growth driver for me.” He expects the RBI approval to come in within a month and a half.