After spending the last year cutting down losses and cleaning up the loan portfolio, HSBC India is looking to grow its retail assets, albeit in a cautious and calibrated manner, rather than the high volume growth it saw four to five years ago, says Mr Stuart Davis, CEO-India, HSBC.
In an interview with Business Line , he also ruled out a listing in India through an IDR issue and said the bank was awaiting regulatory approval for the acquisition of RBS' retail assets.
Performance of India operations in the first half of this year
We have had a big uptick in profits during the last 12 months. Some of the issues we had during the 2008 financial crisis, particularly the losses in the unsecured retail book and commercial banking loans, have been addressed. So now we find ourselves in a strong position.
On the retail side, our focus was on reducing the size of our unsecured assets to basically purge it of bad loans and low quality assets.
The position now is such that today we have good quality credit card book and personal loan book.
In fact, we are now starting to grow these portfolios. But we will grow them in a cautious and calibrated manner rather than at the high level that we did four to five years ago.
On the corporate side, we did reduce our portfolio. So now we have a very high quality commercial loan book and we will be looking to grow that strongly. We are, at the moment, growing strongly and we would like the pace to pick up.
The size of our retail loan book is over $2 billion, and the commercial and global banking loan book together is about $4 billion.
We need to grow our advances strongly. We are now in such a position where we have got high level of liquidity, which puts us in a position to grow the assets strongly.
Possibility of product mix between retail and corporate assets changing
We will always have more corporate loans than retail loans simply because of the nature of our business and our customer base.
Our key competitive advantage is our international connectivity and our ability to bring foreign investors into India and also take Indian companies overseas, as well as our trade finance.
So, we will always have a bias towards corporate loans because it naturally aligns with our areas of competitive advantage. However, we will be looking to strongly grow our retail bank portfolio as well.
We got rid of the problems of the past by shrinking our books. So now we need to grow because our loan assets are of modest size.
We think that there is good opportunity to grow.
We are in the credit card business, but we are not looking at open market sourcing. We are predominantly cross-selling to our existing customer base.
Also, under our corporate employee programme, we are undertaking some cross-selling initiatives.
So, it is more controlled growth rather than high volume open market sourcing we did four to five years ago.
Outlook on credit and deposit growth this year
Credit Growth:
Because of what we have done over the last couple of years, our loan assets have been relatively flat. So, our expectation is that we will grow higher than the Reserve Bank of India's projection of 18 per cent. But that will be off a low base.
We are seeing weaker demand for loans. This is being driven by two things — one is the time and the difficulty in getting statutory approvals for some major projects, which delays the investment cycle, and the other is the high interest rates.
Deposit growth
We have always had a strong deposit base. So, we are actually very liquid at present. The last 12 months have been quite good for us. This is reflected in our results. But as we grow assets, we have to keep growing our deposits as well.
Advantages foreign banks enjoy in the advisory services
It is partly because foreign banks have been doing it for some time in their home markets on the retail side.
On the investment banking side, it is their core competency anyway, particularly where cross border transactions are involved. This segment is naturally dominated by foreign banks and foreign investment banks.
On the retail side, in their home markets, most foreign banks have already been providing advisory services. I think the local private banks have been doing a pretty good job of it.
By distributing insurance and wealth management products through their branches, some of the public sector banks have made a beginning. They probably have some way to go, because they will need to bring in a sales culture. That will require some up-skilling. It is a huge opportunity for PSU banks. The advisory space is becoming more competitive with more players. But there is a huge demand as India's GDP is expected to grow at 8 per cent for, maybe, the next 10 years or so.
Together with the increase in wealth and aspirations of people there is going to be a huge demand for these products. At the moment this is a growth segment, which is why we are seeing lot of players coming in.
Possibility of an IDR listing
We have no intention of doing an IDR. We are already listed on a number of bourses around the world. However, we are looking at doing a Shanghai listing.
What we find is that people in India who hold HSBC shares usually buy them through London or Hong Kong stock markets.
Branch expansion
We have 50 branches. Because of the application pending with the RBI for the acquisition of RBS' retail assets we haven't applied for any branches. We are hopeful that the approval will come in any time now. How many branches we get from RBS will depend on approval from the RBI.
Recruitment
That will depend on the growth in our business. In the last 12 months, we have held our staff numbers tight as we have done quite a bit of work on efficiency.
We have strong growth aspirations and our expectation is that the staff numbers will grow in tandem with that, over the next decade.
However, the first attempt is to make our work and processes efficient and reduce bureaucracy. Jobs and roles can change in keeping with the focus on improving our efficiencies.
We currently have over 6,000 people in the bank, 1,400 in the broking arm and about 25,000 in the global resourcing centre and software delivery.