Indian-owned banks: missing opportunities?
Monday, July 1, 2002
IN 1984, HIREN PATEL AND AMBARISH Mahajan laid claim to history when they opened the Chicago-based National Republic Bank, the first bank in the U.S wholly owned by Indians. The National Republic Bank has been in existence since then, but it has kept a very low profile. In 1990, Mahajan broke away from this partnership to buy out another bank in the south side of Chicago, the Mutual Bank. In the last decade, Mutual has grown to $245 million, more than a 1000% growth from the $22 million with which Mahajan began. The bank has four operational branches in Illinois, and boasts a number of retail consumer banking facilities: ATMs, personal financing, and investment.

There is now a new kid on the block: Ash Patel in the West coast has managed to gather the required $7 million base to open Premier Commercial bank, strategically located next to the much-frequented Disneyland, in Anaheim, California. His bank's deposits in the last half-year have grown to an enviable $45 million. Apart from these relatively visible banks, there are a number of virtually unknown Indian-owned banks scattered across the continent.

Since Indians form a significant immigrant population in the U.S., it might seem surprising that none of these banks have yet tapped into this extraordinarily rich customer base. Most of these Indian-owned banks have chosen to cater exclusively to the hotel and motel industries, a traditionally strong business-hold of the Gujaratis.

"When we came here forty years ago, there were only two kinds of immigrants from India: the engineers and doctors who came on scholarships to study and work, and people like us, from the business side," says Ambarish Mahajan. "We worked our way up in the motel industry, and when we saw the opportunity to finance new motels around the U.S, we capitalized on it. Nobody thought of it as a good business. It is only today that engineers and doctors are turning into businessmen."

Entrepreneurial pioneers such as Mahajan have built strong empires on business banking and are quite content with their growth. But do they see their banks growing in the future? "We are open to anybody who wishes to do business with us. In fact, Mutual's consumer banking is doing very well in Illinois," he says.
Ash Patel, speaking on behalf of Premier Commercial Bank, echoes Mahajan's sentiment. He explains, "I come from a Gujarati family, and I can understand the Indian culture of doing business - their needs and their dreams. I also realize the need for seed capital amongst new, growing firms. We are willing to talk to them, and see what their business potential is. In fact, our current clients include some software and hardware firms, and an Indian restaurant."

When Patel walked out of his previous job as a senior banker, his clients followed him. Premier has loaned out about $15 million and has enough to loan out in the coming months. Given its proximity to Disneyland and the strong growth-rate of the motel industry, Patel seems to have positioned himself quite well in the market.

While Indian-owned banks have not been altogether assiduous in tapping into the Indian consumer market, international banking chains have quickly moved to secure a foothold in this lucrative market. International banks like Citibank are wooing Indian consumers with incentives like free money transfers to India and high-interest deposits - some are even opening new branches in local Indian communities.

Well-established banks such as Wells Fargo, Union Bank, and Comerica are also attracting Indian-owned small businesses by offering them a number of incentives for small businesses such as government-assisted Small Business Administration (SBA) loans, lines of credit, and equipment loans. Unless Indian-owned banks specifically gear their services toward Indian-owned small businesses, it is unlikely that they will successfully woo Indian business customers away from these larger banks.

Indian-owned banks might do well to learn from the example of United Commercial Bank (UCB), which has 34 branches in California and boasts a stunning $2.4 billion in assets. Much of UCB's success can be attributed to the fact that it actively seeks to cater to Chinese immigrants, who number about 2.4 million.
Moreover, UCB is the biggest gateway to conduct business with mainland China. Jon Downing, executive VP and CFO of UCB, accounts for UCB's success: "While international bank chains did enter the market with some tailor-made solutions to the Chinese community, UCB is a bank solely developed for this community. Our website is more than just a website. It is a portal in itself, and our customers can surf in their language. Every branch is staffed by people who can speak Mandarin and English."

UCB began as a trust and was incorporated as a bank in the 90s. While consumer banking is an important part of the bank's business portfolio, it has not ignored small businesses either. "Our portfolio in commercial banking features many small businesses, and we see exponential growth with these businesses," says Downing.

While focusing on the hotel and motel industries has generated substantial profits for Indian-owned banks, there may very well be tremendous untapped potential in consumer banking for the massive Indian community. Given today’s market conditions, where it is not a big task to raise the $7 million for the required FDIC capital base, forming a bank would not be very difficult at all.

Of course, the capacity to offer quality service will be the predominant factor in success. But given the success stories of an ICICI and others in India, isn't it time the entrepreneur approached banking from a fresh perspective?

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