Mumbai: Foreign banks might have "lost the plot" about two decades ago to make it big in India, losing ground to local private banks, but HSBC India's chief executive, Hitendra Dave, now wants to use a recent approval to open new branches to regain some of that ground.
In January, the bank got a Reserve Bank of India (RBI) go-ahead to open 20 branches across cities such as Lucknow, Amritsar, Bhopal, Bhubaneswar, and Dehradun among others. When completed, the expansion will take its total branch count to 46. The first of the new lot was opened in Vadodara earlier in December. Unlike other banks, Indian branches of foreign banks need regulatory approval to open branches.
“Twenty years back, foreign banks just lost the plot. We allowed private banks to become as big as they have become in one of the most profitable markets of the world and it was our incompetence, our inability to see the future,” Dave said in an interview.
Dave, who got the India CEO role in 2021, said he wants HSBC to be the fifth largest private sector bank in India. Drivers of this growth will be the wealth and consumer businesses tapping into a growing phlanx of affluent customers.
“I think there is room for only one international bank, while retaining its international character, way of operations, governance, legal entity structure, to aspire to be as big as the top five private banks,” said Dave.
“This is a wonderful opportunity presented to banks like ours; if we don't do justice to the opportunity, I will certainly not blame any regulatory issues or my head office."
The pecking order among private Indian banks by assets as of 30 September lists HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and IndusInd Bank as the top five.
An exodus of foreign lenders
India has seen foreign banks exiting a crowded market, especially in consumer loans where competition from local private sector banks and state-owned lenders is stiff. Local banks have the upper hand in the number of branches and feet on the street to lend and collect small ticket loans.
Of late though, some foreign banks are upping the ante with JP Morgan getting regulatory approval to open a branch, with Bloomberg calling it the first in nearly a decade. However, foreign banks still have a tiny 3.3% share in outstanding loans as on 31 March, as against 52% and 40% by public sector and private sector banks, respectively.
The most recent instance is that of Citi India selling its retail business to Axis Bank for ₹11,603 crore. That apart, Deutsche Bank is in talks with at least three lenders to sell its retail and wealth management business in India, per a Bloomberg report from November.
HSBC India is among the few foreign banks that still has a sizable consumer business in India and is pushing for a greater presence among the affluent and the wealthy. As of 31 March, the bank had ₹23,123 crore in non-priority sector retail loans spread across housing, credit card dues, and “other retail loans”.
These form 16.7% of its overall non-priority sector loans, with the share of services sector exposure the highest at 35.8%. Banks have to set aside 40% of their total credit to sectors like agriculture, small businesses, education, and renewable energy, among others.
Target: Fast growth cities
According to Dave, the cities where HSBC will establish branches are those with significant expansion of wealth in the recent past, significant manufacturing capabilities in and around the city, and a sizable non-resident population. “We think this is the largest branch expansion permit given by RBI to any international bank, at least going back two decades.”
As part of the bank’s retail push, Dave pointed to the growing number of HSBC credit cards and spends on those cards.
Per RBI data, HSBC had 954,431 credit cards in India, higher than all other foreign banks and only behind the American Express card network. HSBC credit cards have an average spend per card of ₹17,477.5 in October, as against the industry average of ₹18,784.4, data from RBI showed.
“My credit card spends have grown at a CAGR (compound annual growth rate) of 45% in the last two years and if I maintain a 45% growth for another five years, I will catch up on credit cards with India's 5th largest card issuer. Now, it is not that the other issuer is not doing anything, it is also growing,” said Dave.
HSBC’s push for more growth in India coincides with the heightened interest of foreign capital in the financial services sector. Recent deals between RBL Bank and Emirates NBD Bank as also Yes Bank and SMBC have shown how RBI is willing to allow an expanded presence of foreign capital in banking. Dave is positive that new players will come with new technology, new products, and create more interest in financial services.
“All the top private banks are already giving us (competition) and I would rather say that we are not even competition for them,” said Dave. “Of course, competition will increase because there will be more players, but whether that will make our life more easier or more difficult, I don't think so. I think it's tough in any case.”
Dave also said that HSBC India is investing in technology and hiring people with a technology and digital background. “The bank of the future will be run by these young new engineering grads that we are hiring, who are coming to our office and saying, ‘My God, which era do you live in?’,” he said.