HSBC has done well in India over the years thanks to the bouquet of services it offers across the corporate and retail channels. HSBC India CEO Stuart Milne tells Pranav Nambiar the bank’s strong balance sheet and global presence will give it an edge over others in acquiring clients. Excerpts:
The Indian economy is showing signs of revival at a time when the economies in Europe and China are slowing down. What opportunities does this offer banks like HSBC?
HSBC aims to be the world’s leading international bank, leveraging our global footprint across 73 countries. Our strategy is to take advantage of our strong network of businesses in the markets most relevant to international trade and capital flows. We believe that as the India growth story revives, our strong and liquid balance sheet and our global presence gives us a competitive advantage.
For example, in the recent past we saw significant interest from our global MNC and FII customers in investing in India. In 2013 and 2014, we advised and financed some of the largest cross-border FDI and FII flows into India. This included the Diageo acquisition of United Breweries, the stake enhancement by Unilever, GSK , Pfizer. Our wholesale banking business, including global banking, global markets and institutional equities, played a key part in this process. We believe that this is only the start of the increased event and flow business.
How do you read credit growth in the country?
We have historically seen credit growth of between 2 to 2.5 times real GDP growth in India. Basis this, one would expect credit growth in the next financial year to be over 20% (using the new GDP series). However, a mix of still subdued corporate expansion plans, continuing risk aversion to select sectors, availability of funding from capital markets and lower commodity prices suggest that credit growth in the next financial year is more likely to be between 10% and 15%, with a likelihood of pick-up as the year progresses.
Among the different emerging markets that HSBC operates in, where does India stand in terms of market risks?
Market risks typically tend to be correlated at a level to macro indicators like fiscal deficit, current account deficit, inflation, debt to GDP, etc. Given that the movement on all of these has been surprisingly positive, the macro stability picture of India stands out relative to its peer group.
The FX reserves have been beefed up substantially over the last year, corporates continue to deleverage or term out their loans using debt capital markets and there have been efforts made to deepen local markets and make them more liquid. All these combined make India an attractive destination, which explains the robust portfolio flows we are seeing into India’s markets.
Have you seen any positive developments as far as ease of doing business in India is concerned?
India currently ranks 142 out of 189 in the ease of doing business index. Therefore, we believe there is a long way to go. Over the last few months or so, there has been a lot of positive noise around this subject, but the feedback from our clients is that they want to see some real action on the ground.
Importantly, they say that we have a government which is very keen to receive feedback from investors, and this change is not limited to the Central government, but has percolated down to the state-level political leadership as well. There seems to be increasing competition between states to attract capital and investments resulting in the likelihood of business-friendly regulations. This is a very refreshing development.
What is your take on the recommendations of the RBI’s working group on priority sector lending norms that puts foreign banks at a par with local lenders?
It is too early to comment as we are still reviewing the recommendations, but on the face of it, we see no significant positive outcomes. It does have some positives but appears net negative for private and foreign banks. However, we are keen to see the roll-out of the priority sector lending certificate as that will establish the real cost — it seems like the cost will rise.
How do you see the interest rates trending in India over the next few quarters?
Interest rate trajectory will be linked closely to developments on the inflation front. Given the 50 bps cut already effected in Q4 of 2014-15, we believe the RBI has the space to effect an additional cut of 25 bps by the end of June. Thereafter, we do not expect to see further cuts for the rest of 2015.
What are HSBC’s branch expansion and employee hiring plans in India?
The HSBC Group is possibly the largest foreign financial employer in India with over 32,000 employees. We expect this to grow over time. We continue to invest across all our products and have a particular focus on digital. For example, we are the first bank to equip our retail banking team with tablets for account opening and mortgage lending. We believe that over time, digital distribution will become increasingly important as we continue our expansion in India.