Stuart A Davis took over as CEO, HSBC India, at a difficult time but has managed to clean up the retail loan mess and put the bank back on the growth track. Davis tells Shobhana Subramanian that the recommendation of a 40% target for priority sector loans is somewhat stiff. He confirms that HSBC is pursuing the acquisition of RBS?s retail and SME assets but admits it?s taking time due to some complexities.

Where does HSBC go in terms of the retail portfolio?

We?ve dealt with the problems quite aggressively and I am quite pleased where we find ourselves today. Going forward, we look to strongly grow the mortgage portfolio and we have put a lot of work there in last twelve months. We?re also looking to selectively grow the credit card business and also personal loans. Unlike before when we did a lot of open market sourcing, this time it will be restricted to customers together with some initiatives like the one with makemytrip.com to grow the credit-card portfolio. We will be coming off a relatively low base so I expect the percentages to be high. Don?t be surprised when you see our next results, there will be a significant increase. We are not trying to do it in one year; this will be a long-term sustainable business.

Treasury income as a share of profits is relatively high?

It is not as high as 80%, but going forward the retail side would become more profitable and we would continue to grow in the commercial side, then you will see the percentage would come down. Currently, we are very heavily skewed toward global banking and markets and you will find in the coming years that it will become more balanced.

Any thoughts on the Nair committee proposals?

The recommendation is that foreign banks increase loans to the priority sector from 32% to 40% and obviously we would prefer 32% rather than 40%. But the reality is that when subsidiarisation comes we?re going to have to move to 40% anyway. So in some respects, it is just bringing forward the agenda. Probably the bigger concern for us is to see actually what qualifies as PSL.

And on the subsidiarisation, are you happy with the terms?

Obviously there are some key issues around the tax and stamp duty and that?s the first step before it becomes a proposition to look at. We would also like some discussions on priority sector lending because the guidelines say 10% of lending has to be to agriculture and that?s not something we have done before. They do allow us five years to build up to it but it would be a challenge not only for us but for other foreign banks too. Obviously we would always like to have more branches and currently, we?re continuing to process the acquisition of RBS commercial business.

Why is the RBS acquisition taking so long?

It?s because of the complexity of the transaction and the way in which we would need to transfer the assets, so the timetable has a pushed out a bit. Branches are one of the important points of discussion with the RBI. They?ve given us some criteria in terms of what they would expect in terms of the impact on customers and staff because we are taking over the retail and SME assets. There have been some complexities but we are optimistic.

HSBC was in India before Citi but doesn?t seem to have capitalised on it…

We have around 50 branches but would have liked more. In terms of comparison, Standard Chartered and Citi, we?re doing extremely well as the latest results show, our pretax profits in 2011 were $814 million.

How many branches are you hoping to open next year?

For us, it?s not just the number of branches but the location that becomes very important. It is about a portfolio approach because you know you are going to get some branches in under banked areas so the key is our ability to profitably conduct business in these areas. We have been testing what we would call the light branches and they have been quite successful providing us with number of learnings in terms of how we can run branches on a low cost basis. That is going to be important if we are going to conduct business in the under banked areas. For us the NBFC is work in progress.

Has the bank given up third party distribution?

In terms of wealth management products, we do with the right staff in house. What we have found is rather than doing wealth management on a product sales basis we do it on a relationship management basis. So we look at the customer?s needs on a holistic basis; ours is more of customer centric model rather than product centric model. We did tend to be more product centric but we found that when Sebimade the changes relating to insurance and mutual fund products, meant that it was difficult to run the product centric model.