Standard Chartered Bank’s business in India is going through a rough patch. From being the most profitable market for the British lender in 2010, India now occupies the third position in the Standard Chartered Group. The bank’s pre-tax profit from India business fell 33 per cent last year. Sunil Kaushal, who took charge as the chief executive of Standard Chartered Bank’s India and South Asia operations in February this year, however, appears confident that India will continue to remain a growth market for the bank in coming years. In an interview with Somasroy Chakraborty, Kaushal shares the foreign lender’s strategy to grow its businesses here. Edited excerpts:
This is not a good time to be a banker in India, right?
Actually, wherever I went, crisis has always followed. In 1998, I was in Dubai and everybody was expecting that the Asian crisis would not hit West Asia. But oil prices fell to $8 a barrel. Then I was in Singapore, and there was an outbreak of SARS [severe acute respiratory syndrome]. The Iraq war also began at that time. After that I went to Taiwan and we had the global financial crisis. Now, I’m here and the situation is like this [laughs]. I think in the past five years, we have had such a volatile external environment that it is highly unlikely that things will stabilise soon. Now, it is almost like the normal way of doing business.
What worries you the most?
The biggest worry is a sharp decline in the growth rate. That will create more stress. Another worry is the rupee depreciation. Also, being a large player here, we want investors’ sentiments towards India to be positive. Currently, there are many negativities. However, there is hope that in the second half, we will see some increase in investment and trade activities on the back of improved sentiments. Banks always gain when investments and trade activities increase.
It seems that everyone is living on hope. Is there any concrete evidence that suggests that investments will pick up in the second half of this year?
In the real short term, there is a lot of negativity. A lot of it is owing to external factors. But if you look at the Bric countries [Brazil, Russia, India and China], you will find that the growth rate of Brazil and Russia is lower than that of India. Even China’s growth rate is slowing. So, in the context of a global slowdown, India is still reasonably well placed. India’s fundamentals are still strong. The consumer growth outlook continues to be positive. We are in the middle of one of the harshest external environments. We don’t know what is going to happen in Europe. It can be very jarring. What gives me hope is that India always reacts to a crisis positively. India still continues to offer a lot of opportunities. So, when someone writes about the economic miracle of India, this [crisis] will probably be one paragraph. The headline will still be: India in a super-cycle.
Where do you see the Indian rupee heading?
The market tends to overshoot estimates. So, it will be very brave of me to put a number to it. But our expectation is that once the volatility settles down, we will see a gradual appreciation in the local currency towards the late second-half of this year. The fundamental story of India is still positive. It is difficult for institutions that have set up business here in the last two or three years to convince their head office to invest more in India right now. But institutions like ours that have had a big presence in India for so many years will cope with it.
Do you expect the Reserve Bank of India [RBI] to cut rates in this environment?
It is a complex situation. The rupee is still depreciating. We had an increase in petrol prices that will have some impact on inflation. We are sitting in between a growth rate that is decelerating and food inflation that is still elevated because of supply-side constraints. RBI has done its bit in terms of repo rate and CRR [cash reserve ratio] cuts. Going forward, it will be a balancing act. We will have to see how inflation pans out. Our house view is that there will still be a 25 basis points rate cut given the sheer pressure on growth.
India’s position in Standard Chartered group has slipped. How do you plan to regain the top spot?
It slipped because revenues had come off while interest costs were going up. In a rising interest rate situation, you are always playing catch-up in terms of passing the increase in interest cost to customers. Also, corporate investment activities remained slow, some of the reforms were held back and the exchange rate was extremely volatile in the last few months of 2011. We are vigilant and monitoring our portfolio closely. We are comfortable with our exposure in respective companies. We have seen good growth in our underlying businesses like trade, cash management, consumer banking and offshore operations. There are challenges but probably they are being exaggerated.
But the perception is that the credit quality of your corporate loans, especially your exposure in the telecom sector, is under stress.
It is very difficult to change perceptions. Instead of getting into details, I can tell you that we are very comfortable with our exposures in different sectors. We have securities around these exposures. There are sectors that are under stress and we are continuously monitoring our exposures in them.
A few senior-level executives from the wholesale banking division left Standard Chartered Bank in the past few months. Will this affect the functioning of your wholesale banking business in the short term?
I don’t want to comment on individuals. For foreign banks, the wholesale banking business is always bigger than consumer banking because of our limited number of branches. Our senior management knows this country very well. Our relationships with clients are not dependent on any particular individual. They are institutionalised at the senior-most level. Our CEO visits India often. There are times when people think that they are bigger than institutions or they are the reason why the institution is doing well. In my view that is a myth.
Will you focus more on the consumer banking business now given the slowdown in corporate investments?
Our consumer banking business in India is doing well. It is reflective of the economy. Consumer spending is still growing at seven to eight per cent. People are spending despite the slowdown. If you look at our mortgage, personal loan and credit card businesses, all are seeing double-digit growth. The small and medium business, which is part of our consumer banking business, is also doing well. But in the context of Standard Chartered Bank in India, consumer banking will remain smaller than the wholesale business.
In this uncertain environment, will you be comfortable expanding your unsecured loan portfolio?
Our unsecured loans have a relatively small share in the consumer banking book. We are moving towards a more customer-based approach rather than a product-based approach. We are doing this globally and not just in India. So, if I have given a mortgage to a customer, then I will try and address his requirement for a credit card. Since I have given the mortgage, I know the customer very well. Hence, I’m confident in offering him a card. Then, probably, I will provide him wealth management services. This approach helps in managing risks better.
Will this shift in strategy lead to realignment of manpower and resources? Will Standard Chartered Bank cut jobs in India?
There are three phases — first we install, then we fine tune and finally we take it to customers. We are already in the second phase. Installation is done. Now, we are putting resources behind it, training them. The whole organisation – front end, middle and back office – has to look at it in the same way. Only then there will be success. Awareness and communication play a huge part. India is a growth market for us. We have been in India long enough to see the big picture. We will continue to invest more in terms and wait for things to turn around.