Infrastructure push, PLI to drive up working capital demand in India: Standard Chartered Bank’s Michael Spiegel

We have seen less of an impact of this war-related supply chain disruption than we have from the general supply chain disruptions.

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The dislocation of containers and the geopolitical challenges, including the Sino-American tensions that started in 2018-19, have also had an impact. 

Demand for working capital is set to rise in India as a result of the government’s infrastructure push and the production linked incentive (PLI) scheme, Michael Spiegel, global head, transaction banking, Standard Chartered Bank, told Shritama Bose. India is an important market for the bank and it will be the first one to fully implement the bank’s new payments infrastructure, he added. Edited excerpts:

To what extent has the war affected the business?

We have seen less of an impact of this war-related supply chain disruption than we have from the general supply chain disruptions. So Covid has had much more of an impact for our clients, and that is due to the fact that our bank’s footprint is strong in Asia, Middle East and Africa. We are present in Europe and America too, but mainly in western Europe, not so much in eastern or central Europe. What we have seen clearly is that there is some disruption in terms of the flow of oil, however, metals and mining wasn’t impacted as much. The dislocation of containers and the geopolitical challenges, including the Sino-American tensions that started in 2018-19, have also had an impact. 

Regardless, 2021 was a great year for our global transaction banking business, with trade and working capital recording an over 16% year-on-year (y-o-y) income growth while our cash business mitigated about 60% of the impact of interest rates compression through higher transaction volumes in 2021. We have also started the current year strong, with our TB business growing over 4% y-o-y in Q1 of 2022.

Do you see shifts in global supply chains affecting the course of globalisation?

Two years ago, we produced a research paper on supply chain, where we characterised it as a shift from just-in-time production to just-in-case. You saw the huge dependency of Europe on pharmaceutical base material coming from India and China as the two largest manufacturers. There is clearly a shift for bringing some of the manufacturing into Europe to reduce dependencies on China, and ASEAN, central Europe, Mexico and Latin America are going to be big beneficiaries of that. In India, there have already been discussions about reducing dependence on other countries. I think that is a valid discussion in many regions, but it’s not easy to resolve. We need to be a bit more realistic about any potential reversal or slowdown in globalisation. While global trade has been growing slower than global GDP (gross domestic product) ever since the global financial crisis, in absolute terms we see it increasing.

Where does India fit in your overall transaction banking pie?

It’s significantly important. We have an onshore presence and booking in 44 markets and we bank clients in over 90, and India is among the top five markets for us. One example of its importance is the new payments infrastructure that we have developed, and India is the first country where it will be completely implemented. It is cloud-enabled and it is critical for us in India because it’s a high-volume market. If you look at some of the fintechs, payment service providers and NBFCs that we work with, the number of transactions keeps increasing exponentially. For that, you need a scalable infrastructure, and we have that. India was also not as badly impacted by the Covid shock as some of the other markets.

Private sector capital expenditure is improving in India. How are you positioning yourself in this market?

If you look, for instance, at the renewable sector, we are a strong player there. In fact, we’ve just had a deal signing in that segment. We are working closely with Apraava Energy in terms of pre-project completion enablement, where we have done a large transferable letter of credit structure that allows them to tap suppliers for their green energy projects.

So we are committed to support sustainable linked and inclusive projects. We have a strong project and export financing team in our bank. We have a focus and commitment on renewables and transition finance. We also work closely with some of the large engineering companies here in India.

We work with some of the large private sector groups in the telecom sector. We are well positioned as one of the larger foreign players in this market. Our expectation is that with all the infra push and the PLI scheme, working capital demand will go up.

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