Mumbai: At every meeting with his staff, Stuart A. Davis, the new chief executive officer (CEO) of HSBC Holdings Plc.’s Indian unit, delivers two messages. One, they must help strengthen the foundation of the bank. And two, “We are keen to grow in India.”
Davis was named CEO in April when the UK-based HSBC elevated Naina Lal Kidwai as chairperson of its Indian operations. He had earlier been CEO of the Australian unit of HSBC.
An Australian native, Davis closely follows the Indian Premier League (IPL) cricket tournament and cheers Australian players. Apart from trying to understand the nuances of banking in India, he is also trying out Indian cuisine.
In an interview, Davis spoke about the challenges and opportunities for HSBC in India. Edited excerpts:
How do you find the credit environment in India compared with the rest of the world?
Strengthening foundations: Davis says the operations in India have been highly successful in terms of profits. Ashesh Shah / Mint
The impact on large Indian corporates has been relatively minimal. Even in the middle market, the impact of the global economic crisis has been quite modest. My perception is that almost 85% of India’s GDP (gross domestic product) depends on domestic market and 15% on exports, and this to some extent has isolated India from some of the worst impacts of the economic crisis. There has not been the same level of stress that we find in some other countries around the world. There have also been some good policy initiative from government and regulators.
So far HSBC has only had a CEO in India. Now Naina Lal Kidwai is the chairperson of the group and you are the CEO. What does the change in management structure mean?
It is an indication of importance of India for the group and the growth being achieved. I will focus on the bank, which forms almost 80% of the earnings of the group in India. Naina will be free to look after the number of investments we have in India.
Any piece of advice that you got from Kidwai?
She keeps telling me that India is a place where optimism is important and you need to see the positives. It’s all about having a different perspective. It would be very easy for somebody to come here and look at the roads, the traffic and some of the poverty and miss the opportunity.
How important are India and emerging markets for HSBC in light of the global turmoil?
The major stresses have been in the developed countries. That has meant that the emerging markets are important from a growth and profitability perspective. The emerging markets will grow faster than developed markets and therefore our group has a goal that 50% of our revenue and 50% of our profits should come from emerging markets.
China and India are two key countries in emerging markets. We have made significant investments in India over the last few years and the group will continue to invest in its operations in India.
What is your assessment of Indian operations?
I had a lot of briefings from my staff. At present, I am on an information overload. The first thing that struck me was the size of the operations. The other thing that struck me is the quality of staff. I was told before I came here that I will be running the operations with the smartest people in the group.
Part of my challenge is to get all the intellect and energy in our people here and get it working in the same direction. I don’t see any limit to what we can achieve in India.
Certainly, you have the normal business challenges which are customer-centric. We have to ensure that our infrastructure is in place so that we have the scalability in our operations that enable us to achieve the growth rates we are planning to achieve in the next few years.
For the last three years we have seen a compounded annual growth rate of 46% and one would think it would be difficult to maintain that level of growth because it’s an extraordinary level.
There is stress on your consumer finance portfolio. How do you plan to address that?
Wherever there is stress we will work with the customers and ensure that we correctly identify our market and that we can deliver to that market. Alternatively, we would exit from it.
We have 47 branches which give us a good level of distribution and we will continue to grow that as we get approval from the Reserve Bank of India. The key thing is to maximize the value of these branches for distribution of wealth management and mutual fund products.
The acquisition of IL&FS Investsmart Ltd (last year) is exciting. It has given us a retail brokerage platform. It has 68 branches and 170 franchises in 103 cities. This gives us a wonderful opportunity to market wealth management and insurance products.
Any changes that you envisage in the Indian operations?
The operations in India are highly successful in terms of the profits and so it is not an operation that needs change. I see my key challenge is to ensure we have a strong foundation so as to maintain the growth momentum. We have in place infrastructure in terms of robust information technology system, robust processes and well-trained staff. All the fundamentals of business are in a position of strength.
What’s your message to the staff?
My message to them was that we need to strengthen the foundation since we are very keen to grow. I am keen to visit our key business centres. My travel schedule is very hectic and I am going to be accused of getting out of Mumbai during the monsoon.
One thing I didn’t appreciate before I came here was the amount of travel I would have to do within India because of the spread of population, the diversity and the different approaches in various areas. It is not a homogeneous country and this is also part of the excitement.
There have been some retrenchments in HSBC India.
Over the last six months we had to rebalance our staff in certain areas where growth has been slow. The way we go about it is, we tell our staff and look at redeployment opportunities within our operations. We have been successful and able to minimize the number of retrenchments.
We have now got to the position of rightsizing. We would look at selective recruitments, based on specific skills, and bring more talent to the group.
Your take on financial sector reforms in India?
With the Congress party being able to form a strong coalition, it has raised expectations not only in the financial sector, but also in other sectors. The challenge (before the government) will be matching the shopping list of expectations.