In an interview, Chadha shares his views on the future of banking, his passion for angel investing, how NBFCs need an overhaul, his personal ambitions and more. Edited excerpts:
The Indian banking system is constrained right now with stressed assets. What exactly has gone wrong?
Yes, I do believe the Indian banking sector is constrained, both in terms of significant stressed assets and being short of capital to fund India’s strong economic growth. However, it would be wrong to put the blame solely on historical crony capitalism or banks’ loose credit policies or on stressed borrowers being wilful defaulters.
The global financial crisis created a very challenging external environment. Indian corporates with stressed balance-sheets have been no exception; in fact, some of the corporates—from Brazil to China, Indonesia to Turkey—have been even more stretched.
Much is spoken of indiscreet high leverage by some Indian industrial groups in making global acquisitions. This is true. Bridge loans provided by banks for acquisitions without sufficient diligence on take-out financing should have been far better credit-assessed.
More specific to India is that NPA recognition and remediation frameworks have been way behind the curve. Having said that, the regulator and the government in India are extremely focused on strategic and tactical banking reforms. Looking ahead, resolution is now in the right direction. But this is a multi-year process, not a multi-quarter one.
What have been the biggest changes in the financial services space globally?
At a global level, the biggest change in banks has been regulatory—what banks can and cannot do, making banks safer with significantly higher capital and liquidity buffers and demanding focus by bank boards on “how" and not just on “what".
Growing protectionism with higher sovereign walls has necessitated re-caliberation of banking business models for all global banks.
Being a global universal bank has become much more challenging. Instead, the future will see more of global monotone banks or local universal banks, with much sharper focus on compliance, controls and costs, driven by technology rather than by labour. No surprise that RoE (return on equity) of banks are in a structural decline from their peak a decade ago.
Going forward, financial architecture will go increasingly digital whether it’s for customer acquisition, risk management or operational excellence. Banks must adapt and adopt big data as the key CEO-led priority. It would not surprise me if the early innovation adopters come from emerging markets, be it from Alipay in China or HDFC Bank in India or DBS in Singapore.
What about the direction and changes in financial services in India?
I compliment what the RBI (Reserve Bank of India) has done by providing licences for small finance banks and payment banks. This has fostered an innovation sandbox in India which allows experimentation to happen and yet RBI can control the systematic risk if it doesn’t play out well.
Now RBI is also opening up universal banking licences for professionals. That again is a positive, definitely forward thinking.
Ultimately customers will benefit in product, price and accessibility, both savers and borrowers.
...on public sector banks, they have the largest last-mile footprint. They still own a significant majority of the customers. They are trusted by the masses. Should the public sector banks have strategic and operational empowerment across financial and human capital, they can be the biggest beneficiaries of the technology leapfrog. Imagine an Alipay and SBI coming together!
If you were to reinvent NBFCs in India what would be the areas you would look into?
NBFCs and shadow banking continue to grow globally as they provide a shock-absorber to the commercial banks and don’t risk public deposits or the taxpayer.
In India, NBFCs must focus on real customer problems like delivery on sharp turnaround times, providing unsecured credit to the under-banked, re-inventing education loans, working capital receivable financing for e-commerce supply chain, structured finance to mid-caps, distressed turnarounds, acquisition financing, infrastructure financing, alternatives for wealth management, etc. Overall, some NBFCs may eventually transform into specialized or universal banks.
Quite a few banking veterans have turned angel investors. Have you also invested in any fintech companies?
Yes, I have invested in a few digital companies in India and Singapore, in both the fintech and non-fintech space. I have done this with people who are much younger and much better qualified then me to create innovative applications to solve real problems. It’s exciting for me to be the student, to learn and reinvent myself while being available to share strategic advice.
One such exciting company is Bangalore-based StyleMyLooks, a deep-tech enabler in the fashion e-commerce world, where I am a co-founding investor with the managing founder and CEO being Sravanth Aluru, a very impressive young mind. Its market launch is next quarter.
What is your professional ambition now?
I have been incredibly privileged to have had the opportunity to successfully manage Deutsche Bank across 16 countries in the Asia Pacific. Organizationally, the skill set of managing large surface areas would be my comfort zone.
However, with the excitement of angel investing, what I may do next may be somewhat more raw and quasi-entrepreneurial. Whatever I do, it will be built on strong values, solid governance and benefit society. More on that once I am ready to announce it in 2017-18.