CEOs of four leading foreign banks in India—Sanjay Nayar of Citibank, Neeraj Swaroop of Standard Chartered, Romesh Sobti of ABN Amro and Vishwavir Ahuja of Bank of America—were asked to give their views on six contemporary issues—the Indian market, foreign banks’ edge over competition, profile of competition, capital infusion to support growth in India, innovations and, finally, on their plans in April 2009 when the Indian banking regulator is set to revise the ownership norms.
Given a choice, all four are keen to grow in India through acquisitions. They admit that competition is intensifying both from private banks as well as their counterparts in the public sector, and the foreign banks are no longer the sole innovator in the Indian financial space. Yet, all four CEOs are bullish on the Indian market. They are ready to commit any amount of capital to seize growth opportunities with both hands. Edited excerpts:
Your take on the Indian market?
Sanjay Nayar:We have been in India for over a century now. Our role has evolved from a trade finance bank to a bank that provides a complete suite of products for everybody. We are bringing the power of Citigroup to a huge client base in India.
Rapid urbanization and growing investments in manufacturing and services sectors have made India attractive. We have been a local bank catering to local needs all along. Five-and-a-half years ago, when I came back from New York, I had a clear mandate—“Make it even further local and be embedded in the country”. That’s what we have been doing.
Client acquisition has always been a priority for us. On the one hand, we are servicing the high net worth corporate clients and, on the other, reaching out to the consumer finance clients who have earnings of less than Rs1 lakh per year. We have acquired a significant chunk of the small and medium enterprise business. Now we are offering banking services to unbanked consumers. This is no generosity. We see a large business opportunity there.
Neeraj Swaroop:We entered India in 1858. The profile of customers and products have been evolving—from traditional banking products, such as savings accounts, to widespread use of ATMs, personal loans, mortgages and auto loans. Today, sophisticated customers are asking for personalized services; traders are looking for sophisticated risk hedging mechanisms; and corporate clients are looking at outbound acquisitions.
India is a core market for Standard Chartered globally, accounting for 14-15% of the bank’s global balance sheet, up from 8.8% last year.
Romesh Sobti: India offers a level playing field in terms of products and services and a target market with a critical mass. Fifty per cent of the Indian population is below 25 years of age and this large group is accessing consumer debt. All these make the Indian market attractive for us.
We believe that with smart coverage we can have access to a large fee pool in areas such as insurance and asset management, foreign exchange business, etc. Where we score over local banks, is we do not have to spend time making products such as derivatives. All we have to do is to customize them to service our Indian customers. We do not have to start a production factory.
Vishwavir Ahuja:We have been in India since 1964 and have seen the ambitions of Indian entrepreneurs rise as the economy liberalized. Being a wholesale bank, we have seen the increase in the need for finance among Indian corporations. Today we are a preferred choice for large Indian firms such as Reliance Industries, Infosys Techonologies and Wipro Technologies. India is a top priority nation in terms of scope among the 39 countries where we operate.
Your edge over competition?
Swaroop:Our edge is service and the global relationships that we offer to our clients. Corporate clients are harbouring ambitions of cross-border presence and we can provide them end-to-end services. For instance, in the recent Maxis-Aircel deal, we were bankers to Maxis in Malaysia and Aircel in India.
Our edge is also intellectual property. We are present in sophisticated markets and we understand structured finance products better than our local counterparts. When the banking regulator opens up the sector, we expect to be a market leader in product offerings to customers.
Nayar: We can successfully juxtapose the global with the local. We are servicing every customer segment with a complete suite of products for individuals as well as corporations. I don’t see any other bank that has our width of operations.
Our closest competitors in the private sector can’t match our expertise in global finance and leverage finance. Even other foreign banks do not have localized access to brokerage, capital markets and investment banking that we enjoy.
Ahuja: Our edge over both foreign and private banks is our ability to service Indian corporations when it comes to cross-border deals. Large firms need banks with large balance sheets. With a global balance sheet of $1.5 trillion and expertise in several markets, we score over competition.
Sobti: We will score over others when norms for overseas investments get more relaxed. The Reserve Bank of India is slowly moving towards a fully convertible currency. Today the outward investment for a retail investor is limited but soon there will be scope of a family investing $1 billion annually. This is where we come in. We have a huge network internationally and we are better equipped to provide global trade solutions and cash management.
Your plan for infusing fresh capital for Indian operations?
Ahuja:Our capital base as of March 2007 is Rs1,777 crore. We will not remit our profits to the parent bank. We have enough capital and would like to deploy it prudently.
Swaroop:Over the last year alone, $1 billion has been brought into India operations. The parent bank has allocations for different countries but we do not have a country limit for India. We are totally committed to the Indian operations and are embedded as a local player. We will bring in our product expertise to the Indian market and concentrate on providing the best services to the customer. We are particularly bullish on wholesale and consumer banking and capital will never be a constraint for us.
Sobti: We are well capitalized. We have not remitted our profits for the last 15 years—a huge number in itself. If you see the peer group numbers, we have the fastest-growing balance sheet in overall assets and advances. The parent fully understands the growth opportunity in India and we are not constrained either by country limits or by capital. The only constraint that we face is access (in terms of branch network).
Nayar: We are adequately capitalized and India continues to be an important destination for the parent bank. Our commitment is servicing clients and gaining market share even with the constraints of access.
Expectation from RBI when it reviews bank ownership norms in 2009?
Sobti: We are not expecting a big bang change but a gradual change in the form of allowing foreign banks to acquire private banks. We have always been interested in inorganic growth. We will scout for opportunities when the scope increases. Till then, we will have to use our branches smartly to get the best access (to customers and fee pools).
Swaroop:We are currently constrained by a limited number of branches and cannot access the large retail pool in tier II and tier III cities. We are eagerly waiting and watching the moves of the Indian central bank. We hope that policies are liberalized for our growth—both organically and inorganically.
Assuming that the central bank will give foreign banks the liberty to acquire Indian banks, we will be interested, depending on the opportunities available and the cost of acquisitions.
Nayar: The regulator has given us a well-documented road map. We are happy to wait and watch as it evolves. Things may happen a little later than 2009, depending on factors such as consolidation in the domestic banking sector and implementation of the Basel II norms. If you ask me for my wish list, I would say foreign banks should be allowed to float subsidiaries. We could become a wholly owned subsidiary of our parent and look and feel like an Indian bank. We will be on the lookout for acquisitions as and when the regulator allows it but till then we are concentrating on growing organically.
Ahuja: We have adopted a wait and watch policy for 2009. We are expecting some liberalization in ownership norms but it is too premature to comment at this point.
Foreign banks in India don’t seem to be innovative enough.
Sobti: The field of innovation has widened. Ten years back, foreign banks were the sole innovators. Now you have private banks. This does not mean that foreign banks have stopped innovating. It’s just that you do not see innovations in isolation. And innovation today does not mean a radically new product; it means a little tweaking here and there.
For instance, a credit card is no longer an innovation. But the fact that you can determine a limit on a credit card is an innovation. We have recently introduced a credit card that gives 2% cash back across all purchases. This is an innovation in a small way.
Swaroop:I do not think foreign banks have stopped innovating. It’s just that the scope of innovations has become much larger with private banks getting much more access to the retail pool.
Nayar: Citi has led the way on innovations and we still have quite a few firsts to our credit. For instance, we were the first to launch biometric ATMs in Dharavi (in Mumbai) and Hyderabad. We are the first to innovate on commodity hedging. The next space of innovations for us is clearly in the area of financial inclusion. We need to combine innovation with mobile commerce as we cannot have branches in remote rural pockets.
Ahuja: Innovations are plenty on the debt side. A number of complex and sophisticated products are used by our clients worldwide. We did the first US private placement for companies such as Reliance Industries and Indian Oil Corporation in 2006. We are also ready with innovative products such as credit-default swaps. As the markets open up, we will be pioneering innovation on the debt front.
Finaly, your take on competition?
Sobti:Competition is already intense and it will get stronger. There will be a few more players coming in but the market is huge, growing at a rate of 25-30%. Nobody is worried about new players. What we should concentrate on is giving the consumer a different proposition. If you bring value to the customer by way of convenience, it engages her.
Swaroop:Competition will intensify as public sector banks consolidate and new entrants enter wholesale and retail banking. In order to beat competition, we have to constantly keep innovating even with the constraints that we have. Our differentiator will be the value-added service that we offer to our clients.
Ahuja: It is true that we have a lot of banks in the country but they are vying with each other on the same product segments and same markets. The need of the day is to increase reach and offer a complete range of banking services to the untapped markets beyond metros and Tier I cities.
Nayar: I think competition will get stronger but we will have to differentiate in terms of value-added propositions and quality of service.