Will Foreign Banks Exiting UAE Home in on India? The Case for a Regional Financial Hub
As Energy Shocks and Remittance Declines Dominate Policy Debates, a Banking Crisis in the Gulf Could Present an Opportunity—If India Addresses Long-Standing Structural Barriers
Energy shocks and a fall in remittances from the Gulf might occupy the energies of our policymakers for much of this year. These large issues, however, could lead us to overlook the banking shock in the UAE. With oil, hospitality, tourism, trade, and real estate sectors facing difficult times, the UAE banking sector is taking a massive hit. International banks have largely shut down and pulled out their staff. They are seeking safe havens—for a change, this means physical safety and not tax-free status.
Could India be that haven? The answer is not straightforward. While India has many advantages—a large economy, a deep talent pool, and growing global influence—it has seldom been favoured as a regional headquarters. To change this, policymakers must address long-standing issues of urban governance, currency convertibility, and the fragmentation of financial infrastructure.
The UAE Banking Landscape
The UAE has more than a trillion dollars in banking assets, which are double the size of its GDP. India’s GDP, at nearly $4 trillion, is eight times the UAE’s, but our banking assets (at less than $4 trillion) are only about three times the UAE’s. The deep financialisation of the UAE is largely because it is an open economy that operates as a regional financial centre. The leading names operating in the region include Citibank, JPMorgan, HSBC, Credit Agricole, BNP Paribas, and India’s own Bank of Baroda.
This concentration of banking assets in the UAE is not accidental. For decades, the Gulf has served as a hub for international capital, attracting banks with its tax-free environment, modern infrastructure, and strategic location between East and West. Dubai and Abu Dhabi in particular have positioned themselves as gateways to the Middle East, Africa, and South Asia.
But the current crisis has exposed vulnerabilities in this model. With oil prices volatile, tourism disrupted, and real estate markets under pressure, the UAE banking sector is facing severe stress. International banks are reconsidering their presence. Staff are being pulled out. The search is on for alternative locations.
The GIFT City Question
While GIFT City in Gujarat may beckon these banks, it is unlikely they would move there. GIFT City is designed for the local investor seeking to invest in foreign assets, which is quite a different role from being a regional headquarters for international banking operations. Also, its location in Gandhinagar is not too attractive a place to live in, and there are problems of talent attrition as well.
GIFT City was conceived as India’s answer to Dubai and Singapore—a special economic zone for financial services with its own regulatory framework. It has made progress in attracting certain types of financial activity, particularly in the areas of international financial services and fintech. But it has not yet become a true regional headquarters location for major international banks.
The reasons are several. Talent is a major issue. Top banking professionals prefer to live in established global cities with good schools, healthcare, and quality of life. Gandhinagar, despite its pleasant environment, does not yet offer the amenities that would attract senior bankers from New York, London, or Hong Kong. The talent pool in Gujarat, while growing, is not yet deep enough to staff a regional headquarters.
The Mumbai and Chennai Option
It is more likely that these banks will prefer established financial centres like Mumbai or Chennai, if given some incentives. Mumbai is India’s financial capital, home to the Reserve Bank of India, the Bombay Stock Exchange, and the headquarters of most major Indian banks. It has a deep talent pool, a vibrant business culture, and the infrastructure—however strained—that financial institutions require.
Chennai has emerged as a strong alternative. It has a well-developed banking and financial services sector, good connectivity, and a reputation for liveability that Mumbai sometimes lacks. Several global banks already have significant operations in Chennai, and the city has been successful in attracting back-office and technology functions.
But neither Mumbai nor Chennai is yet seen as a true regional headquarters location. Both cities face challenges of urban governance that make them less attractive than their competitors in Dubai, Singapore, or Hong Kong.
The Urban Governance Deficit
It is somewhat surprising that the practice of bypassing India for a regional office has hardly changed in half a century. New excuses are found for the avoidance, such as Bengaluru’s terrible traffic, Mumbai’s overcrowding, Kolkata’s dilapidated state, and Delhi’s life-threatening pollution. These are a reflection of poor urban governance more than anything else.
It is sometimes said in jest that the Minto-Morley reforms of 1909 were our last serious look at urban governance. Municipal bodies and district boards then had the power to hire and fire staff rather freely—a power that has been much curtailed a century later. In practice, few municipal politicians graduate to higher levels, and the fragmentation of urban governance across multiple agencies makes coherent planning difficult.
However, it is noteworthy that Chandigarh, which is a Union Territory, has escaped many urban problems. While there is no space for federally administered cities in our Constitution, Mumbai has expanded up to the Gujarat border near Dahanu. The Ahmedabad-Mumbai-Pune coast is turning into a giant megalopolis, with acutely divided political authority and no overarching planning body.
Foreign capital and foreign banks alike prefer stable, low-risk urban environments. They need cities with reliable infrastructure, efficient administration, and predictable governance. Federally administered cities could be a possible solution—a model that has worked in Chandigarh and could be extended to other financial centres.
The Structural Barriers
Any relocation of banks from the UAE will become attractive only if our policymakers address the issues of currency convertibility and lowering of import tariffs. What is striking is that while the earliest concept papers on Bombay as a financial centre (like the Lovraj Kumar note) argued for trade liberalisation, tax incentives, and limited currency convertibility, subsequent policy took a silo path. Each component was considered in isolation without any synergy.
Our SEZs have no significant tax advantage since the introduction of Minimum Alternate Tax and the abolition of Section 10AA. GIFT City is not linked to a free port, and it has no tariff advantages. The integrated approach that would make India a true regional financial hub has been missing.
Currency convertibility is a particular sticking point. For a financial centre to serve as a regional headquarters, capital must be able to flow freely. The rupee is not fully convertible, and while progress has been made in recent years, significant restrictions remain. International banks need to move money across borders without friction; they cannot do so in India’s current regulatory environment.
China used a dual currency system—both the Yuan and the Renminbi—to gradually advance currency convertibility, and in the interim it used the tax haven of Hong Kong to access foreign capital. This path may not be feasible for us. Hong Kong’s unique status as a Special Administrative Region with its own currency and legal system is not replicable. But there are other models: Singapore, Dubai, and Luxembourg have all built regional financial hubs without full currency convertibility by creating offshore financial centres with separate regulatory regimes.
The Opportunity
It is never too late to begin planning for a regional financial centre when our metropolises are mutating into megalopolises and our SEZs still have land to spare. The current crisis in the UAE presents an opportunity that may not come again soon. International banks are looking for safe havens; if India can position itself as a stable, business-friendly environment, it could attract a significant share of the banking assets now fleeing the Gulf.
This requires action on multiple fronts. First, urban governance must be reformed. Whether through federally administered cities or other models, India needs cities that can compete with Singapore and Dubai for talent and investment. This means reliable infrastructure, efficient administration, and a high quality of life.
Second, the regulatory environment for financial services must be streamlined. The fragmentation between SEBI, RBI, and other regulators creates complexity that deters foreign entrants. A single window for financial services approvals, as exists in some other jurisdictions, would help.
Third, currency convertibility must be advanced. Full convertibility may be a distant goal, but incremental steps can be taken to make it easier for international banks to operate. An offshore financial centre with its own currency regime, building on the GIFT City model, could be part of the solution.
Fourth, tax incentives must be restored. The removal of tax advantages from SEZs and GIFT City has made India less competitive. A coherent tax policy that attracts international banks without encouraging domestic tax evasion is needed.
Conclusion: A Historic Opportunity
The banking shock in the UAE is a historic opportunity for India. If we can address the barriers that have long kept international banks from establishing regional headquarters here, we could attract a significant share of the trillion-dollar banking assets now looking for a new home.
But this requires a shift in mindset. For too long, India has viewed financial services through a domestic lens, focusing on inclusion, stability, and control. These are important goals, but they are not inconsistent with becoming a regional financial hub. Singapore and Dubai have managed to balance openness with stability; there is no reason India cannot do the same.
The window of opportunity may not be open for long. As the crisis in the UAE stabilises, international banks may decide to return, or they may find other havens. India must act now to position itself as the natural alternative.
The pieces are in place: a large economy, a deep talent pool, growing global influence, and a strategic location. What is missing is the political will to make the necessary reforms. If we can find that will, we could transform India from a country that is bypassed for regional headquarters into one that is sought after.
Q&A: Unpacking the Opportunity for India as a Regional Financial Hub
Q1: What is happening to the banking sector in the UAE, and why does it matter for India?
A: The UAE banking sector, which has over a trillion dollars in banking assets (double its GDP), is facing a massive hit due to difficulties in oil, hospitality, tourism, trade, and real estate. International banks are shutting down operations and pulling out staff, seeking safe havens—this time prioritising physical safety over tax-free status. This creates a historic opportunity for India to attract these banks, potentially capturing a significant share of these assets, if it can address long-standing structural barriers.
Q2: Why is GIFT City unlikely to be the destination for these banks?
A: GIFT City was designed primarily for local investors seeking to invest in foreign assets, which is a different role from serving as a regional headquarters for international banking. Its location in Gandhinagar faces talent attrition challenges, as top banking professionals prefer established global cities with better amenities, schools, healthcare, and quality of life. The talent pool is not yet deep enough to staff a regional headquarters, making established centres like Mumbai or Chennai more attractive alternatives.
Q3: What are the urban governance challenges that deter foreign banks from choosing Indian cities as regional headquarters?
A: Foreign capital and banks prefer stable, low-risk urban environments with reliable infrastructure, efficient administration, and predictable governance. Indian cities face well-documented problems: Bengaluru’s traffic, Mumbai’s overcrowding, Kolkata’s dilapidated state, and Delhi’s pollution. The fragmentation of urban governance across multiple agencies and the lack of coherent planning—exemplified by the Ahmedabad-Mumbai-Pune megalopolis with divided political authority—make Indian cities less attractive than competitors like Dubai or Singapore.
Q4: What structural barriers prevent India from becoming a regional financial hub?
A: Key barriers include: limited currency convertibility (the rupee is not fully convertible, restricting capital flows); lack of tax advantages (SEZs have lost significant benefits with the introduction of MAT and abolition of Section 10AA); and fragmented policy approaches that treat trade liberalisation, tax incentives, and currency convertibility in isolation rather than as a coherent strategy. GIFT City is not linked to a free port and has no tariff advantages.
Q5: What reforms would India need to attract foreign banks exiting the UAE?
A: India would need to: reform urban governance (potentially through federally administered cities like Chandigarh) to create stable, attractive urban environments; streamline the regulatory environment for financial services with a single-window approval system; advance currency convertibility incrementally, potentially through an offshore financial centre with a separate regulatory regime; and restore tax incentives to make India competitive with other regional hubs like Dubai and Singapore. The current crisis presents a narrow window of opportunity that requires urgent, coordinated action.
