India chief executive Jaideep Khanna says local operations now sustainable after retail business shutdown
Mumbai: The local operations of Barclays Bank Plc have become “sustainable" after the shutdown of the bank’s retail business, and the existing corporate, wealth management and investment banking businesses in India “meet the return expectations of shareholders", Jaideep Khanna, chief executive officer (CEO) for India, said in a interview last week.
“We do not want to directly compete with a number of Indian banks. We don’t believe that we have anything unique to offer, for example, in the retail business, which was one reason why we shut that down," Khanna said, adding that the British bank will now “want to partner with large domestic financial institutions rather than compete with them".
Barclays has a chequered history in India. Its investment banking arm, Barclays Capital, has been around since 1990. However, its commercial and retail banking operations that started in 2007 did not go according to plan.
Rising non-performing assets, particularly in the bank’s retail business, forced it to shut three out of its nine branches and all 39 automated teller machines by 2012.
In his first interview after taking over as CEO in January, Khanna said the decision was right and does not demean India’s importance in the bank’s business.
“We have the same ₹ 4,800 crore of equity in the balance sheet since 2006, that hasn’t changed. It (decision to shut retail) was not about capital, but about competitive advantage. Can Axis Bank Ltd lend as effectively to retail in the UK as we do? The answer is no... So how do we believe that Barclays in India can lend more effectively than State Bank of India (SBI), which has a massive branch presence, low-cost deposits and large credit appetite?" Khanna asked, while explaining the rationale behind the decision.
Losses from Barclays’ Indian operations have shrunk to ₹ 56.38 crore in fiscal 2012-13 from ₹ 183 crore in 2011-2012.
However, its existing operations—investment banking, securities, corporate banking and wealth management—have swung to a net profit of ₹ 25.98 crore in fiscal 2013 from a loss of ₹ 100.46 crore in fiscal 2012.
“We believe that by investing capital in India, we can generate an adequate return that satisfies our shareholders and meets the equity returns for our shareholders. So there is no reason for us to take this capital and deploy it elsewhere," Khanna said.
The bank’s total assets in India have risen to ₹ 24,582 crore in March 2013 from ₹ 22,766 crore in March 2012.
Khanna said the bank still views India as a “long-term" business opportunity. “We have always made money in the investment banking business. It’s the largest in Asia-Pacific for several years in terms of contribution to Barclays investment banking revenues. In the coming years, I expect that to continue," he said.
S. Ranganathan, head research at LKP Securities Ltd, said retail banking is very different from wholesale banking and it’s a call that banks have to take regarding what business suits them best.
“Retail banking is not difficult, but different because the way a bank approaches customers; the risk management practices are not same as wholesale banking. Some banks like JP Morgan Chase and Co. do not have large operations in India, but have a huge BPO (business process outsourcing) business. So it depends on what stance a bank takes on a country," Ranganathan said.
Barclays counts the Tata group, the Aditya Birla Group, the Essar Group and Reliance Industries Ltd as clients in investment banking. The bank is hoping it can expand this relationship to its corporate banking business.
In corporate banking, Barclays services multinational clients with a sizeable presence in India, such as telecom company Vodafone Group Plc and engineering and technology conglomerate Siemens AG.
It also helps Indian companies in their overseas operations in the UK and Africa where the British bank has a large presence.
Khanna is hoping Barclays can get more business from Indian banks and financial institutions such as HDFC Bank Ltd, SBI, Axis Bank and ICICI Bank Ltd by helping them raise money abroad, provide cash management services, and trade finance business in Africa.
“There are multiple ways where we can work with these clients in jurisdictions where we have a foothold that they may seek to develop. ICICI Bank has a UK subsidiary and Axis Bank has set up in the UK, where we would love to offer them cash management services," Khanna said.
With a 19% capital adequacy ratio, Barclays India does not require any more capital at present.
“Our strategy is entirely organic. The cutbacks are 100% over, and as and when we require more resources, those resources are available. We have the go ahead from the senior management to build the business with whatever investments we require," he said.