KEY HIGHLIGHTS
- Chinese bank ICBC had secured a bank branch license to operate in India from RBI almost a decade ago
- Equity dilution by NPCI an effort diversify, distribute shareholding to a larger set of RBI-regulated entities
- ICBC among foreign banks in India that got a small pie in the NPCI which diluted a little less than 5 per cent equity
- Banking sector insiders believe the Chinese bank's investment should be seen differently from funding in banks or NBFCs
The National Payments Corporation of India (NPCI), tasked with creating retail payment and settlement infrastructure in the country, has inducted a Chinese Bank -- Industrial and Commercial Bank of China (ICBC) -- as a shareholder in the company. Chinese government-owned ICBC is also the world's largest bank in terms of assets at $4 trillion. The bank is way ahead of US biggies like JP Morgan Chase and Bank of America in terms of total assets, deposits and advances.
ICBC is already registered in India as a foreign bank. It had secured a bank branch license to operate in India from the Reserve Bank of India (RBI) almost a decade ago. That was when India-China trade ties were beginning to open new opportunities for Chinese banks with branches in India.
The current equity dilution by NPCI is part of its move to diversify and distribute the shareholding to a larger set of RBI-regulated entities which also include foreign bank, NBFCs, and fintechs.
ICBC was among the foreign banks present in India that got a small pie in the NPCI which diluted a little less than 5 per cent equity in the current round. The shareholding of Chinese bank is very small, but it assumes significance in light of recent tension between the two countries.
In the last one year, political sentiments have dramatically changed against China. The government has tightened foreign portfolio investment rules especially with regard to investments coming from neighbouring countries with a Chinese connection citing 'opportunistic takeovers'.
India had also banned over 100 apps including Wechat, Shareit, TikTok, PUBG etc.
However, there is no bar on Chinese portfolio investment in India. This is actually the fourth recent investment by a Chinese institution. The People's Bank of China had made minority investments in mortgage lender HDFC Ltd, private sector ICICI Bank and non banking entity Bajaj Finance Ltd.
The People's Bank of China is the country's central bank. However, Chinese investments in India's financial services sector is no threat to the financial system. That's because the voting rights in the banking sector has been restricted to 15 per cent of the total shareholding. The acquisition of share beyond 5 per cent of the bank's capital also needs a prior approval from the RBI.
Banking sector insiders believe that the Chinese bank's investment in the NPCI, which also owns and operates innovative UPI, should be seen differently from funding in banks or NBFCs. They argue that NPCI is like a regulator for retail payments. They further say that at a time when the entire digital payments space is witnessing a transformation globally, the entry of a Chinese bank in the India's payment and settlement body is like allowing them too much access.
NPCI's core promoters initially were all big banks lead by SBI, ICICI and HDFC Bank. Four years ago, the NPCI diversified its shareholding to include dozens of Indian banks -- both public and private. Further broad-basing the equity shareholding is yet another initiative to include RBI regulated entities like new age NBFCs, Fintechs and foreign banks.