Eyeing higher Indian investment in the financial services sector, Bahrain expects more Indian banks to start operations in the Kingdom, preferably taking up an active role as regional ‘investment houses’.
The country has one of the most developed financial services sector in the Gulf Cooperation Council (GCC) and feels this sector has a potential to attract more FDI. Financial services, currently, contribute one-fifth to Bahrain’s GDP.
Significantly, major companies from India’s financial services industry have shown interest to invest in Bahrain. Two public sector life insurers have shown willingness to start operations in the island country and are expected to soon seek the permission of the Central Bank of Bahrain (CBB).
“As economic ties between India and GCC deepen, more and more Indian banks will set up some kind of presence here,” Bahrain Economic Development Board (EDB) chief economist Jarmo T Kotilaine told FE.
The EDB is a public agency, which has the overall responsibility for attracting investment into Bahrain and supporting initiatives to enhance the investment climate.
Kotilaine said there were a lot of potential for trade between GCC and India. During 2010-2014, bilateral trade between India and Bahrain averaged approximately $970 million each year (including non-oil and oil goods traded and excluding services).
Among 113 banks registered in Bahrain, there are five Indian lenders — SBI, ICICI Bank, Canara Bank, HDFC Bank and Bank of Baroda. Total assets of the banking sector reached $189 billion as of October 2014.
“The key question really is what are they (Indian banks) coming here to do. Are they coming here primarily to serve the needs of the Indian companies, or the Indian resident population here, or are they coming here to take a more active role in regional investment and build their presence as investment house in the GCC? ICICI Bank, for instance, has really done the latter,” said Kotilaine.
According to him, for Indian banks, the main attraction in Bahrain had been remittances flow, trade and investment.
Over 3,50,000 Indians are living and working in this country. All five Indian banks in this country are wholesale banks. Only SBI and ICICI Bank are licensed to operate as retail banks. According to EDB, Islamic finance is one space where there is enormous opportunity for institutions based in Bahrain and India to collaborate.
CBB, which is the single regulator for the entire financial services sector, said currently the country is chalking up strategies to grow its financial services sector and banking is clearly a major priority.
“I think Bahrain has taken the right course in terms of doing business. The cost of funds here is one of the lowest among GCC countries, especially in retail,” said A Rahman Moh’d Al Baker, executive director, Financial Institution Supervision, CBB.
Talking about the insurance sector, Al Baker said life insurance industry has shown significant growth in the last five years and, to tap this market, two public life insurers from India recently expressed interest. He, however, declined to name the companies.
LIC and ICICI Prudential Life Insurance Company are already operational and the latter has approached CBB to allow it to upgrade representative office to a branch.
At present, as many as 12 life insurance companies are operating in the country with total premium collected standing at about $166 million, which is 24% of gross premiums of the insurance sector.
Significantly, there is no sector-specific cap for the level of FDI in Bahrain as the country recognises 100% foreign ownership. Total FDI to Bahrain in 2013 was $989 million, an increase of 11% y-o-y, outpacing global average growth of 9%. And approximately 94% of FDI to Bahrain in 2013 was in the financial services sector.
Travel for this report was sponsored by the Economic Development Board, Bahrain
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