"Ease the 5% Exposure Cap": Financial Institutions Accompanying President Lee Urge Indian Authorities

It has been confirmed that major banks and other financial institutions accompanying President Lee Jae-myung on his state visit to India requested the Indian authorities to ease capital regulations during their stay. The banks reportedly emphasized that they are facing limitations in key business areas such as corporate lending in India, a market with nearly 1.5 billion people, due to local capital investment limit regulations. Insurance companies have also called for regulatory relaxation, including improvements in the settlement conditions for local employees.

President Lee Jae-myung is speaking at the Korea-India Business Forum held on the 20th (local time) at the Bharat Mandapam Convention Centre in New Delhi, India. Photo by Yonhap News

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According to the financial sector on April 24, KB Kookmin Bank, Woori Bank, and others requested the Indian Ministry of Finance and the International Financial Services Centres Authority (IFSCA) to ease the capital exposure limit regulations during the "Korea-India Financial Cooperation Forum" held on the 20th (local time) during President Lee's visit to India. The forum was also attended by Lee Eogwon, Chairman of the Financial Services Commission, Lee Byeongrae, Chairman of the General Insurance Association of Korea, and Jeong Wankyoo, Chairman of the Credit Finance Association. On the Indian side, officials from the Ministry of Finance, IFSCA, National Payments Corporation of India (NPCI), as well as major financial firms and fintech stakeholders participated.

India is an untapped market with high growth potential for Korean banks. As of now, the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) have 669 local representatives and employees in India. Shinhan Financial Group is the most active, operating as a local subsidiary rather than just branches, and employs 406 people across six regions, including Mumbai and New Delhi. This is followed by Woori Bank (111 employees), Hana Bank (71), KB Kookmin Bank (61), and NH Nonghyup Bank (20). The entry of non-banking financial institutions is also active, with Hyundai Capital (40 employees) and Korean Re (currently recruiting) establishing a presence.

However, all these institutions share the view that regulations are holding them back. The International Financial Services Centre Banking Unit (IBU) in India imposes an exposure cap of 5% of the parent bank's Tier 1 capital (common equity and other core capital) for a single borrower and 10% for a borrower group. This means that even if there is a large loan demand from a local company, banks can lend less than 5% of their own capital. In contrast, Indian local banks have lending caps of 20-25%, putting Korean banks at a disadvantage in attracting customers and expanding contracts.

As a result, the five major banks are facing difficulties in attracting high-quality corporate clients and expanding letter of credit-based discounting (LCBD) operations. In addition, regulations by Indian authorities on foreign borrowing (including the ban on exceeding 100% of Tier 1 capital), the minimum capital requirement for opening a branch (USD 20 million, approximately KRW 2.96 billion), and the rule that only deposits in dollars or other foreign currencies are accepted are also acting as entry barriers. A financial industry official stressed, "If the Indian authorities relax regulations so that the parent bank's capital can be reflected when setting the capital size, we could increase our loan performance through large-scale corporate lending operations." The official added, "Although the likelihood of the Indian authorities relaxing the regulations is low, regulatory easing is a prerequisite for full-scale business expansion, so we will continue to voice our concerns."

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The non-life insurance industry also requested the authorities to improve settlement conditions for local employees in order to develop the Indian market. The General Insurance Association of Korea has received a request to enter "GIFT City," the international financial and technology hub in Gujarat, and plans to conduct a demand survey among its members in the future.

However, the industry remains cautious about a full-scale entry due to declining profitability caused by worsening auto insurance loss ratios. Both Samsung Fire & Marine Insurance and Hyundai Marine & Fire Insurance have previously withdrawn their offices, and none of the six major non-life insurers (Samsung Fire & Marine Insurance, Meritz Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, KB Insurance, Hanwha General Insurance) currently have concrete plans to enter the market. At present, only Korean Reinsurance Company is operating in India.

An industry official stated, "It takes a long time to build trust in the Indian market, and the level of social maturity is still low," adding, "We have no choice but to continue market research from a mid- to long-term perspective rather than expecting short-term results."

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