Wednesday, 7 April 2010

ICICI Bank is a foreign bank !

This blog started life a year and a bit ago with the very first post titled “What is 'American Goods' anyway ?" . Now I return back to the same theme after reading a news item that the Reserve Bank of India has declared both ICICI Bank and HDFC bank to be “foreign banks”.

For those unfamiliar with the Indian banking environment, throughout the socialist days of the 70s and 80s India lived with a nationalized banking environment. Government owned banks were the only choice. While they had their strengths, technology and innovation were not among them. They were forced to give out buffalo loans to “poor farmers” and then write them off (collecting buffalo tails as proof of death).

Two banks changed the landscape in just 5 years – ICICI Bank and HDFC Bank. Both were private banks and they revolutionised banking in India. Sure, they have their faults (many actually), but they were a completely different experience to the government banks. In no time they shot up to be market leaders.

They are listed in the Indian and US stock exchanges. Probably 90%+ of their business is in India. Most of their branches are in India. The management is entirely Indian. They are headquartered in India. But apparently more than 50% of their equity is now held by foreign entities, as they are freely traded on the stock exchanges. Voila – the country’s central bank has declared them to be foreign banks.

This just goes to show the devilish difficulty in trying to decide nationalities of corporations. Many companies today are truly global. Their shareholders are from all over the place. Actually which nationality do you ascribe to ICICI Bank. More than 50% of the shareholding may be in “foreign” hands, but that is many nationalities put together. Almost certainly the single largest shareholder nationality will be Indian. So if ICICI Bank is not “Indian”, then what is it ? Stateless person ??

So what IS the nationality of a company ? Does it indeed have to have a nationality at all ?? Usually in law, the place where the company is registered is deemed to be its nationality. To determine whether its “foreign” or “local”, its usually the % shareholding that is considered. Some countries, most notably Britain and France, value heritage. Cadbury is always a ‘British” company and Danone always a “French” company, no matter what. Some value where its headquarters is – HSBC is a prime example. Its name says Hong Kong & Shanghai Banking Corporation. Its listed in Hong Kong and in the UK. Its boss is British, but he recently moved to be based in Hong Kong. What about companies which have split personalities – companies like Unilever, Royal Dutch Shell and Reed Elsevier which have two headquarters, two parent companies, etc ?

Actually it doesn’t matter. Except when you have clauses like ‘Buy American” and “Buy Chinese”. Except when you discriminate “foreign companies” from domestic ones. Companies are the truly global manifestation of the human race. Companies have gone where the species should go – being truly global and one – but where societies and nations will never go.

Here’s an aside. You may recall the post about a company standing in the US elections. Presumably only “US companies” are entitled to stand. But we come back to the old problem – what is an US company ? Imagine Osama bin Laden floating a company with majority holding by his US followers, registered in the state of Delaware and standing for the office of the President of the United States. That would be something !

17 comments:

  1. Thought Provoking questions!

    BTW that collection of buffalo tails, was that for real?

    On a side note, definition of globalisation by shashitharoor

    “An English princess with a Welsh title leaves a French hotel with her Egyptian companion, who has supplanted a Pakistani; she is driven in a German car with a Dutch engine by a Belgian chauffeur full of Scottish whisky; they are chased by Italian paparazzi on Japanese motorcycles into a Swiss-built tunnel and crash; a rescue is attempted by an American doctor using Brazilian medicines, and the story is now being told to you now by an Indian visiting Berlin. There’s globalisation.”

    source:http://churumuri.wordpress.com/2006/06/15/shashi-tharoor-what-is-globalisation/

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  2. i am a tamilian born in chennai, primary schooling in delhi, working in karnataka, married into a palakad family and cannot write tamil, converse with my hubby in Hindi!!... so what would you call me. i am only a smaller specimen, there are worser ones....as you rightly said, as long as i am not differentiated based on my identity, whatever i am does not matter.

    b.t.w What will be the identity for Thiru K'ung Tzu!! hmmm... another topic for a nice contest!

    But time, deepa having proved herself to be one of the most creative species in this space - so i leave the honor with her.

    @ Deepa - will await your comment !!

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  3. My favourite line in this piece is-
    //Companies have gone where the species should go – being truly global and one – but where societies and nations will never go.//

    I think corporations are the only way you can set people free and bring them out of their closed doors! Politics & government will never achieve it, because to achieve it you need a free society and trusting the populace, but governments can never trust their own people and will go on making rules and laws to maintain an order supposedly. Business however, is need based and to grow it, you have to explore, and explore cultures. I think corporations should strive towards going global and flaunt that 'Global' title.

    And mixing corporations and politics is a bad cocktail! Infact, the Osama example is such a scary one!
    ---------------------
    @zeno- loved your comment!

    @Sandhya- U r giving too much credit to a mere flash in the pan! :) But of course I have an opinion and I never refrain from giving one!

    I think Thiru k'ung Tzu is truly global. He has seen the whole world. It just incidental, that he has lived in India and China, he could have lived in Tanzania for that matter and he would have absorbed their culture beautifully. Maybe you would have seen a unique vegetarian African then! But yes , "mera(TKT) joota hai japani, yeh patloon englistaani, sar pe laal topi roosi, phir bhi dil hai hindustani !!"
    ------------------------

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  4. Thiru, you've got my head spinnin'

    Truly, globalization is proving to be an enigma wrapped in a riddle. The corporation views the world much as an astronaut views it, without lines clearly seperating nations. Trump has been blowing hot air on the American airwaves recently over how China is the only beneficiary of the US/Chinese relationship. Tell that to FedEx, KFC, and Avon, the latter who would have found itself out of business without the Chinese marketplace.

    In a bygone era, a majority holding by foreign forces could understandably cause one to view the entity as foreign. But as you point out Ramesh, these holdings are freely traded in a world where technology and international trading laws make it easy for many nations to have a hand in the cookie jar. In looking at the list of officers and directors I see names like Chanda, Madhabi, and Sandeep, in fact I see not one name that does not appear to be Indian. I imagine a rollcall of investors would sound much the same, with a good spattering of Smiths, Wangs, Haivolovens, and Garcias in the mix.

    So to label an organization as a
    'foreign' threat, certainly one would expect its because the host country's citizenry are not the main beneficiaries. You clearly spell out a great argument why this is not the case.

    This appears to be outdated thinking by the Reserve and they could do themselves a great service by reading your excellent entry here today Ramesh.

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  5. @zeno - Yes, the buffalo tails story is real. If a farmer wants to write off a buffalo loan, then he has to prove that the buffalo has died. The acceptable proof is to produce the buffalo's tail. Needless to say a thriving market exists in buffalo tails.

    @Sandhya - Easy question to answer - you are one outstanding lady !!

    @Deepa - I think the reason that corporations have gone global is because they are, by and large, a meritocracy. They need the best in the world to survive. Similarly American Universities. They attract the best in the world, mostly without regard to nationalities. Governments, and societies are not meritocracies. They are "territocracies". So they'll never go global.

    Vegetarian African ?? Ha Ha. That reminds me of the story of when I was impishly taken by my host to the Carnivore in Nairobi. That was some experience. Maybe an idea for a Sunday post some day.

    @Hopfrog - Great comment Hopfrog. Corporations indeed view the world as an astronaut and get irritated by artificial boundary lines. The Reserve Bank of India is probably the most conservative organisation in the world . They have got even more conservative, if that were possible, by claiming that India did not suffer a financial crisis because of their conservative policies. Hogwash, but then .....

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  6. ... they would have had to have been a player to have entertained the possibility of suffering during the economic hardship.

    Referencing Mark's blog that we both visit, a crounty's greatest asset is its people, and personally, I feel the people of India and the people of China offer the greatest collective of untapped talent the world could imagine to be possible.

    The coming century could prove to shake the foundations of human expectations, if only, those that hold the reigns would have the courage to let their thoroughbreds run free.

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  7. What is the deal behind announcing those banks as foreign? Should we stand together and say " nattamai,theerpa mathi sollu"?

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  8. @ambulisamma - No big deal. But foreign banks have some restrictions in India and now ICICI Bank and HDFC Bank will face those restrictions.

    @Hopfrog - Entirely agree. That's the greatness of America. Its probably the only place on earth where those who reign let their people fly and actually take pride in it. You guys have even given it a name - The American Dream.

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  9. Anonymous8/4/10

    /I think Thiru k'ung Tzu is truly global.//

    LOL :D :D chancela thalaivaray..zeno deepa sandhya ambulimama madam ivanga comments are the garnishments to the main course of your post :D :D chaancela..semmaya rausu panraaanga..but yeah..thiru kungtzu is a truly global personality :) his blog shd be proclaimed as a true competitor to FB orkut as an original social networking site :)

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  10. It is strange that the Indian government wants to call ICICI and HDFC foreign banks instead of celebrating them as truly Indian successes. I hope this is not politics as usual in some form... But it is fascinating how business is always at the forefront of erasing borders - I loved Hopfrog's astronaut example.

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  11. @Gils - Without a doubt, my post is the plain rice and all your comments are what makes the meal tasty

    @J - This is a case of the RBI just being ultra conservative. After the financial crisis, the RBI is running scared and has gone back to Indira Gandhi era - they are closing borders, and bunkering down. An extreme swing in reaction.

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  12. A very heartening piece to read. Indeed, companies have gone where species should go. Corporations have made this world look flat. Globalization is perfectly fine but should not result in corporate being a contender for the political spots.

    Deepa - Coincidently, my fav. line is the same as yours. Your creativity keeps this space rocking.

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  13. @Vishal - Yes- I am dead against corporations dabbling in politics. The recent Supreme Court judgment in the US is an extremely dangerous one.

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