Mumbai: German engineering conglomerate Siemens AG is launching financial services operations in India at a time when macroeconomic indicators suggest a slowing of the economy and lenders are expressing concerns over the quality of assets in a rising interest rate environment. Despite this, Siemens Financial Services Pvt. Ltd says it will continue to expand in India even as it battles competition from other non-bank lenders.
In an interview, Roland Chalons-Browne, chief executive of Siemens Financial Services GmbH, and Sunil Kapoor, chief executive of Siemens Financial Services Pvt. Ltd, talk about the company’s plans for India. Edited excerpts:
Why did you not enter India earlier? What are your expectations from the Indian market?
Chalons-Browne: We have been thinking about the Indian market for a number of years. Increasingly, we are closely aligning our operations with those of Siemens (the engineering conglomerate) and Siemens is becoming much more active in emerging markets, including India. We are trying to further that development. Our growth will come from emerging markets, and we are simultaneously seeing an increasing need for financing. We see India as a very big and strategic market in the future.
Roland Chalons-Browne. Photo: Saanskrut Kumar/Mint
Which are the other emerging markets you are eyeing?
Chalons-Browne: We recently made an acquisition in Russia, so we are expanding there. At some point, we will broaden our capabilities in the Indian market to offer mezzanine loans, equity investments, particularly in start-up projects. We are also evaluating Brazil as well as a few South-East Asian countries. We are also planning to grow our product capabilities in our established markets.
Walk us through the kind of products and services you would offer in India. Will you restrict yourself to the Siemens network or tap other customers too?
Chalons-Browne: Our whole strategy at Siemens is business to business, largely aligned with the Siemens sectors: industry automation, infrastructure, healthcare and energy. So our focus is primarily on Siemens customers and third-party customers in those domains.
Sunil Kapoor. Photo: Saanskrut Kumar/Mint
You enter India at a time both when the Indian and global economies aren’t performing well. Even in May, when you had obtained the licence, things weren’t as bad. Has this made you alter your original strategy?
Chalons-Browne: It’s a long term commitment to the Indian market. Yes, there is cyclicality but it has not really changed anything in our appetite for looking at India. As in any financial operation, we have to look at risk and reward. When there is a slightly higher risk we have to take that into account. So far we have not seen any notable negative consequence on business we have pursued till date. We may be slightly more cautious as we go through the down-cycle. Yes, there is a challenge in some US and Europe markets, but our customers have not complained as yet.
Apart from commercial funding, what other services can you bring to India?
Chalons-Browne: At the moment, our focus is on commercial finance. But as everyone knows, there is tremendous scope for infrastructure needs in India in the next many years. Our other business units focus on project construction finance—in industries and in energy—which will become more significant down the road in India. We have made an equity investment here in the past, in developing the Bangalore airport.
Roland Chalons-Browne, CEO Siemens Financial Services, and Sunil Kapoor, head of its new Indian operation, talk about their plans and the challenge of coping with high interest rates.
In a rising interest rate environment, how easy is it to launch a new operation and make it successful?
Kapoor: I think our core strength is knowing and understanding our markets. For instance, in a vertical like healthcare that we understand well, we can sanction loans faster and speed is more important than pricing for such borrowers. In the short span, we are committed to close to 50 transactions all over India. So, we play to our strengths.
You run a bank in Germany. Do you aspire to set up a bank in India?
Chalons-Browne: At this point, we don’t have any specific banking aspirations in India. I think we are looking at commercial financing in India. At some point we may evaluate the opportunity. I think it’s a very established market, with many participants and will be very challenging to find a compelling value proposition.
How much did you spend to set up the financial business in India?
Kapoor: We invested $50 million. According to the Reserve Bank of India guidelines, we need to bring that money in two years, but we have brought it upfront.
That shows our commitment here. As of now, we would like to leverage the capital that we have brought. Once that is fully utilized, we will do some bank borrowings and then look for further equity infusion from the parent.
What type of business correspondence model are you going to follow?
Kapoor: It’s going to be a combination of our offices and Siemens’ existing network. We have set up eight offices in the four regions. We are there in all the key metros. We will definitely capitalize on the Siemens office network too.
What is the biggest challenge of starting a financial services business in India?
Chalons-Browne: The challenge here is in terms of evaluating what value proposition we could offer in a very established and competitive banking landscape. I think the differentiating strength we have is to combine a good financing operation with good industrial knowledge for our customers.
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