BackIndia more material to Barclays group now: Jaideep Khanna
India is poised for a China periodseveral years or a couple of decades of sustained growth, says Khanna, CEO of Barclays in India
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It’s been three years since Barclays Plc refocused its India strategy away from retail banking and towards large companies. Since then, the bank’s operations in India have become profitable and its bad loan portfolio has shrunk, said Jaideep Khanna, chief executive officer (CEO) of the bank in India who oversaw this transition. Barclays will stick to that strategy while capitalizing on the opportunities provided by the expected improvement in the Indian economy. Edited excerpts:
How do you view the opportunities in India given the recent volatility in the local markets?
I remain constructive on the country. India is poised for a China period which is several years or couple of decades of sustained growth. I am not disheartened by the short-term slump we have seen and the equity market sell-off, the noise from corporate India. My fundamental view is that there is no real change in the long-term optimism for the country. Investors are cautious and circumspect and rightly so, because the market ran up 30-35% at its peak and has corrected somewhat.
My original anticipation was that the signs of revival in the investment cycle should take at least 18 months from when the government came to power. But it will probably take 24-30 months in reality because I think all of us did not recognize the full magnitude of the problem that corporate India was facing.
The reality is that a number of Indian companies are so highly leveraged and their ability to invest is constrained. Until that is addressed, the fresh investment cycle from the private sector will take time to take off. Hopefully, the private sector will try and address the structural issues of deleveraging by selling assets, reallocating capital and in some cases raising equity even at valuations that may not be appropriate.
But that is corporate India’s problem. What can the government do on corporate leverage?
The government can make it easier for people to invest. What that will do is create a climate, in which corporates can get better valuations, their assets can be sold, but in the end, corporates have to act. They have to recognize that the current levels of leverage are not sustainable and therefore, they have to either sell assets or raise equity. Corporate India understands this, but it is not so straightforward. There has to be a buyer and you have an obligation to make sure that you get a reasonable value for the assets that you sell. If raising equity, the market conditions have to be right and there has been a softening of interest. Investors are very discerning, though they are still looking to invest in India. There was a time when anything could be sold but that is not the environment of today.
After having restructured the business, what is Barclays’ strategy now? Does it change, given your view on India?
It has been three years since we restructured our business and we have not really materially changed since we restructured. We are very pleased with the outcome since we embarked on this. Last year, we turned a profit; this year, we are significantly profitable and results to be released will show that we will be better than last year. So I am optimistic because we are executing as well as I had hoped. As the macro becomes more helpful, we expect to reap the benefits. We continue to focus on wholesale markets and leverage our unique positioning as an international bank with presence in UK, Africa and US. India is more material to the Barclays group in every respect now than it was a few years back.
What market segments are you targeting?
Our market segment has remained static; so we are targeting the largest and more sophisticated corporate clients in the country and the big financial institutions. Our investment banking is far more linked to the wallet that is available in the country though the growth has not been the same as it has been in the corporate banking business. The wallet in the country has itself shrunk and while our revenues have held up, it is hard to demonstrate growth when the market is flat to down.
Is there anything that would make you rethink that decision to exit retail banking in India?
No. It’s hard for me to justify devoting Barclays shareholder capital to build a retail business in a market where we do not have a natural competitive advantage and where, in reality, we may have several disadvantages compared to incumbents in aspects such as branch presence, brand recognition and risk appetite. It’s really a question of prioritising asset allocation.
But retail banking is changing. You no longer need branches. Barclays has been a pioneer in the UK in terms of digital technology. Could you look at some way to leverage your expertise in digital technology?
It’s something that we can look at. That’s an area of interest both to our institution and chief executive. The Indian market is evolving very quickly and some of the solutions here are on par with the best but there clearly is an opportunity in this market for many participants, so we continue to evaluate. It’s not clear to me on how we can make a difference with bricks and mortar but if we can do something that allows us to leverage our intellectual property (in digital technology) then may be that makes sense. We have, however, not applied for any new branches.
Your non-performing assets have been falling; how did you manage this? Did you sell or write down bad loans?
The quality of our portfolio has changed dramatically since July 2012. We have worked on our back book. Once that book decayed, we either recovered or wrote off. What has been gratifying is that we haven’t added appreciably to bad loans. All our fresh client business has performed well.
You have said that creating a local subsidiary is not something you would like to do. Does that remain your position?
Subsidiarisation is not something we will do naturally, but just like any other financial institution in the country, we are committed to obeying the laws of the land and if the regulator wants us to subsidiarise, we will subsidiarise. Today, for a bank with Barclays’ strategy and ambitions in this country, subsidiarisation does not add incremental value, but in fact adds significant costs.
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