The world is looking towards the East and India, with its 1.1 billion population, is acting as a magnet, attracting major financial companies, says Alan Pateman-Jones, head of financial services at Ernst and Young, overseeing the firm’s services in the UK and Nemia (Northern Europe, Middle East, India and Africa). The professional services advisory firm, in fact, is planning to expand its Indian business by 50% in the next one year. In an exclusive interview with Mint, Pateman-Jones talks about the subprime crisis and its impact on India; the firm’s India plans and the importance of freeing the market. Edited excerpts:
What is the impact of the subprime crisis in India?
Despite the fact that we are a global and integrated financial services market now, it doesn’t seem that the subprime crisis has spread out across the whole world. The focus of the subprime is still very much around the US. British banks’ results have, in fact, proved that they were not exposed to the crisis as much as their US counterparts.
Big opportunity: Ernst and Young’s Alan Pateman-Jones says that the future is in looking towards the East
I think India is only slightly exposed because the regulatory environment here has ensured that you aren’t as much globally connected as perhaps you might have been had it been a free market. You are being protected, and this, I belive, the regulators particularly wanted. I think you have got an interesting challenge here as you need to free the market and at the same time reachout to rural India. Once you free the market, you are exposed to the global risks. However, the bigger challenge is your credit bureau data isn’t good enough. This is true for all emerging economies. In countries such as the UK, we have bureau data for every single financial transaction and that helps us make make reasonably good risk assessment. But in your case, the (credit) bureau data might be missing altogether when you move towards the rural areas and this makes the credit risks assessment difficult.
Any estimate of banks’ losses in the subprime debacle?
I don’t have a number in my mind and I don’t think anyone can put a number right now. But from my experience in UK markets, I can tell you most of it is out.
Should Indian firms go slow on their overseas acquisition plans given the global credit crunch?
If the price is right, even today, you can get funded. True, the private equity (PE) deals above £1 billion (Rs7,890 crore) have slowed considerably…almost to the point of being dead. Below the £1 billion mark, PE players are still thriving. The funding problem will stabilize in 12-18 months. I think if the pricing is right, Indian firms will not face any difficulty in getting funded.
What’s E&Y’s advice to Indian firms in these tumultuous days?
I think at the stage of market evolution that you are in, you can continue to enjoy protection. However, at some stage, you have to get on the train and expose yourself to some of the ups and downs of global markets. There are big risks involved, but the positive factor is that the risks get shared among the globally connected economies. You take a risk and you immediately pass that risk on to someone and again the other party passes it and the chain continues.
One of the challenges is to find where the risk is actually sitting. However, evidence has suggested that the risk is far lesser than what it used to be. If you go back to the previous crises, when the world was not so well connected, you would have found that the impact was far more serious.
Financial inclusion is the buzzword now. What’s your take on the same for India?
You should get more people into the financial services sector with incentives for a longer-term savings. Making people feel that they have a stake in the financial future of the country is very important for the economic growth of India. Financial services as a sector is the engine for growth.
What my understanding of Indians are that people are inspired here. They want to achieve. If you have a small piece of land, my assumption is that you would like to acquire more lands. You would like to employ people there. Banking can provide loans for that and thus financial inclusion is important.
What are E&Y’s plans for India?
I tell my staff all the time that our future is in looking towards the East. We look to Dubai, Mumbai, Beijing, Hong Kong. So, when I get all my youngsters in, I keep on telling them that expect a future where most of your relationship will be with the East.
Is E&Y expanding in India?
Yes, big time. That’s why I am here. One of the reasons why I am here is that lots of financial services institutions in London are eagerly waiting to come to India. You have a market of 1.1 billion people and the economy is growing fast. We will expand our services here to provide the companies with all kinds of financial, regulatory, accounts and tax-related services so that they can smoothly operate in India.
You must be advising many firms that are coming to India.
I won’t be giving you any names, but you can see the billboards all around Mumbai and find yourself what sort of companies want to come to India. I see it as a two-way movement. ICICI Bank Ltd is doing very well in London with its arrangements with Llyods Bank TSB. There are many things that we can do jointly.
I’ve heard Indian companies are offshoring or onshoring business to China and Chinese companies are also onshoring to others. Earlier, it was India where people used to outsource or onshore. In some time, the world is going to change all over again.