Indian Banks Target Botswana

Two of India’s largest banks have been making positive noises about setting up shop in Botswana, which has seen a steady rise of trade and investment with the subcontinent.

While the Bank of India’s (BOI) decision to enter Botswana’s financial industry follows months of diplomatic and commercial flurry, it was really only a matter of time before a major banker from the subcontinent would see the wisdom of cashing in on the increasingly lucrative business ties between the two countries.

The Indian bank’s overseas expansion list includes two African countries in which to establish a presence. “We plan to set up subsidiaries in Botswana, New Zealand, Uganda and Canada,” according to a BOI senior official. However, neither the bank nor its host, the Bank of Botswana (BoB), are saying just when.

With a government holding at 64%, BOI has the option of a follow-on public offer (FPO). “But nothing has been decided as of yet,” says the BOI spokesman.

BOI’s decision to enter Botswana comes in the wake of last year’s announcement by India’s largest bank – the State Bank of India – to set up shop in Botswana where Indian companies are involved in diamond cutting and polishing and have shown interest in local mining, manufacture and energy. Trade between Botswana and India consists largely of foodstuffs, apparel, pharmaceuticals and electrical goods.

India is engaged in fierce competition with China for trade and investments in African countries. Botswana has become a more clearly defined Indian target in the past few years with the exchange of high-level government and private sector delegations that seem to have been particularly successful.

Trade and investment deals on a large scale look probable in the near future and it would appear that State Bank of India and BOI want to steal a march on their financial services compatriots and be in place when the big deals go down.

For instance, when the Industrial Commercial Bank of China, the largest bank in the world, bought a 20% stake in Standard Bank, (Stanbic in Botswana) worth around $5bn, the rewards were quick to arrive, with large energy and mining projects going to Chinese companies.

The State Bank of India (SBI) established its Johannesburg branch in March 1997 to chase South African business and also to create a bridgehead into southern Africa’s capital markets. It perceived its role as a facilitator between the business community in Africa and India and as a banking intermediary between the banks in India and the trade community on the continent.

“While India-related business does constitute a thrust area of activity, SBI in South Africa is active in corporate finance, international trade, project finance, remittances and correspondent banking,” it says.

“Offices are manned by a team of skilled and experienced managers from India, coupled with the talent of knowledgeable and experienced local personnel. Modern infrastructure facilities are in place and the branch functions in a totally computerised work environment.” The bank has over 9,000 branches in India.

Big Botswana-India deals are in play

The recent decision by Indian power giant JSW Energy Limited to buy CIC Energy Corporation, a Canadian mining and energy company trading on the Botswana and Toronto stock exchanges, is testimony that India has its eye on the big play.

A $414m investment by JSW, which is owned by the extremely wealthy Jindal family, will add about 2.6bn tons of coal assets in southern Africa to its overall inventory, contribute about 1,500MW of electricity in the region and put it on the driver’s seat in other power developments in Botswana.

Coal India Limited, the world’s largest producer of the fuel, is scouting for assets overseas to help meet demand for power plants, and Botswana’s massive reserves, estimated at about 200bn tons, are high on its agenda.

“It’s a good strategic deal, which will help the company secure fuel,” says Shumukh Ghosh, an analyst at Naman Securities & Finance in Mumbai. “They are definitely ahead of their peers in securing coal assets, and are pretty aggressive.”

To all intents and purposes, the Indian bank’s decision to settle in Botswana is cut and dried, but the players aren’t saying so just yet. The Bank of Botswana (BoB), the final regulatory authority that will issue the new banks’ licences, is also tight-lipped about developments and won’t be drawn on how soon Batswana will see the livery of the Indian banks on their country’s high streets.

Four Indian diamond-cutting and polishing companies have established premises in Botswana, the latest being Shrenuj Botswana. The company replaced DDA Botswana, which went under in the global credit crunch.