All foreign banks, barring two, operate through the branch mode in India and the Reserve Bank of India (RBI) now seems to be signalling more benefits for those that use the wholly-owned subsidiary route
Barring two foreign banks, all others operate in India through the branch mode. The Reserve Bank of India (RBI) now seems to be signalling more benefits for those that use the wholly-owned subsidiary (WoS) route. While foreign banks have not been able to make substantial foray into key growth areas, they have had limitations with regard to branches and boots on the ground when compared with established state-owned and privately-held domestic lenders. In an interview with Mint, Kaushik Shaparia, chief country officer of Deutsche Bank India said he does not see much benefit from the subsidiary model at the moment. In the midst of a global restructuring that will lead to job losses, the bank has also seen an increase in headcount in India. Edited excerpts
Does Citi’s retail exit in India present you with opportunities?
The market is quite large in India and there is enough space for all players. The issue here is not so much about the bank that is exiting. It is more about the quality of the offering that a bank makes to its customers. Our international private bank in India caters to business banking, personal banking and wealth management segments. This business is uniquely positioned as the combined offering allows us a stronger cross-selling platform across all three segments by leveraging synergies that better serve our clients. This is probably the area where the bank making an exit is also involved in and that opens up more opportunities for us. I can tell you that there have been queries made from some of that bank’s clients directly to me asking to be introduced to people so that they can open accounts. We will always examine all opportunities, but I cannot comment more than that. We want to grow this business just as we want to grow our other businesses. We have a positive outlook on every business we do in this country.
What kind of balance sheet growth are you targeting in the next five years?
The bank has grown at a reasonable pace in the last few years and the way things have progressed, we continue to have a positive outlook on growth. The Indian economy is also poised for a rebound and there is going to be a high need for further investments into the country. The government is also pushing for that. I see opportunities for us in bringing fresh risk capital as well as long-term capital into India and as part of that, we will also have to expand our balance sheet. Opening up the market for derivatives will also be very useful. Partly opening up this sector through the International Financial Services Centre (IFSC) also offers us new opportunities.
Does Deutsche Bank plan to take the wholly-owned subsidiary route in India?
It depends on how much of that benefit is worth a change in the way we do business in India. There are benefits which our clients enjoy because of the fact that we operate through the branch model. Quicker documentation and the ease of doing business that we are able to deliver to clients right now is an example. Most importantly, RBI has blurred the difference between a wholly-owned subsidiary and a foreign bank branch through regulations on capital adequacy and exposure norms, among others. For all practical purposes, the regulator has taken away all the differences between the two. Since digitalization is so critical, getting to open more branches is not a key need right now and that’s the only possible benefit of the wholly-owned model. If it makes sense, we will do it, but right now we do not see much of a benefit.
How has the global restructuring affected the bank’s India business?
Our global restructuring has been very well-received, and we just reported our best quarterly performance in the last seven years. One area where we have reduced our focus on is equity trading, especially on the research side. So, that is one business we have exited in India. Apart from that, there is no impact for us here. India is a relative winner because we also offer from India a lot of global services to our global franchise and part of that restructuring involves investing in processes to support our global operations. While the bank has been restructuring, it has continued to invest in a market such as India where we have added almost $1 billion worth of capital in just the last three years. The global restructuring does not really change anything for us in India and we continue to see profitable growth opportunities here.
Will there be job losses in India?
Our staff strength is India has grown despite the restructuring, which involves 18,000 job losses globally by the end of 2022. Last year, during covid-19, the bank hired more than 1,000 people here, all of whom were on-boarded virtually. This included hires at all levels—from graduates to senior level managers who joined the bank laterally.
What kind of regulatory challenges do you face here?
There were more regulatory challenges in the past than there are now. I think it is more about the sectors where Indian companies are very competitive. For instance, if you look at the insurance sector or the mutual fund sector, domestic players have a much larger market share. The ability to really build around a strong network of retail clients has been the reason why local players have thrived and global institutions have not. But if you look at the capability in getting foreign investments by way of risk capital or long-term investments from offshore bases into India, that is a key strength that foreign players in the financial sector have.
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