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| It's too early to talk of a revival' | | Q&A: Stuart A Davis, Chief Executive Officer of HSBC |
| Shobhana Subramanian And Sidhartha / Mumbai Jun 26, 2009, 00:15 IST |
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 Stuart Arthur Davis comes to India as Chief Executive Officer of HSBC after a seven-year stint in Australia. Davis, who has been with HSBC since 1981, believes that the creation of infrastructure in India is a big opportunity for banks as is the consumer-lending space. Davis tells Shobhana Subramanian and Sidhartha that although the worst may be over, Indian companies in India appear to be cautious when it comes to taking a decision on capital expenditure. Excerpts:
Are you looking to make HSBC the biggest foreign bank in India?
Our goal isn’t to be the biggest in India, it is to continue the growth momentum. India is an important market for HSBC — from being the 16th-most profitable country in the group in 2005, we’ve now moved up to being the 9th -most profitable country. More so, the group’s strategy is to grow in the emerging markets.
How has the bank’s asset quality held up over the past year?
I guess our experience is very similar to those of other banks, we’ve seen quite significant loan impairments on our consumer-asset-side. We’ve certainly grown strongly in the Small and Medium Enterprise (SME) market in the past couple of years but our strategy has been liability-led so it has helped our deposit base and we’ve provided transactional banking services. Since it hasn’t been asset-led, we haven’t felt the stress as much as others have. I wouldn’t say we have been inactive of late but we’ll play it safe for a while. We’re taking a more conservative view in terms of who we’re lending to, favouring those who have salary accounts with us. What surprised me is how aggressive banks in India were even when there was no credit bureau and little experience to make credit decisions.
What will be your strategy in the retail space?
We have a limited number of branches — 47 and approval for 3 more — so we have to be realistic about which part of the market we can access. We will be predominantly towards the higher-end of the market but conscious that a large number of people are coming quite quickly up the curve. So, it will be a combination of assets and fees and there is clearly a demand for loans, so the strategy will be asset-led. Mortgages will be a key area of growth because delinquencies have been low. Any unsecured lending — like credit cards — usually sees the first signs of stress and the highest levels too.
Since you have very few branches, how will you fund the assets?
It’s something we’re aware of and at HSBC we already have a very conservative approach to deposits, we always have a strong liquidity position. But I’m confident we can fund the growth in the next few years with the deposit-base that we have.
Does third party distribution make sense?
I’m a selective user of third-party distribution. It’s important to know your customers and the best way to do that is to have your own people doing the distribution. There are certain areas where it can provide you with volume but you need to be very careful about it and ensure who actually owns the customers. We feel we can access a large customer base through Investsmart.
Nearly three-fourths of your profits in 2007-08 came from treasury operations. Does that concern you?
Well I don’t want to see the markets business making less money than they’re making at the moment. They do contribute a lot but I would like to see a good balance between various types of earnings, so we’ll be looking for other areas to get us improved profitability. In a few years we’re hoping to see a mature retail business that will bring us sustainable profits. Investsmart will be part of that. We’ll also be growing the SME and mid-market business in the next few years.
The India operations will need capital, will that be a constraint?
So far we haven’t found capital to be a constraint for the organic business. But if we were to do some sort of an acquisition, we would be competing for capital with 84 other countries. But from a capital-allocation point, India will be one of the priority countries because of the level of growth that we expect.
Does it make sense for HSBC to bid for RBS’ assets?
I can’t comment specifically on RBS but the group would be keen to look at any opportunity to grow in India — where the price is right, and it provides the right returns and is capable of easy integration.
Will you continue to pursue an NBFC licence or is the licence that HSBC Investsmart holds adequate?
The fact that the non-banking financial company (NBFC) licence is not with the bank doesn’t hamper the business. We’ll leverage the distribution capability of Investsmart. There is a limitation on what we can do through Investsmart but it does provide some capability for us.
HSBC is listed on five stock markets, any plans to list in India?
One never says never. The advantages of listing would be for our shareholders and it would help in raising capital. At present though, none of these would apply but we would keep a watch.
What specific changes would you like to see in banking regulation in India?
We appreciate the challenges that the central bank in India faces and I can understand that there will be some hesitation to relax the rules. Obviously, we’d like to see relaxation in terms of branches so that we can improve our distribution. We’d like to see de-regulation that allows foreign banks to acquire Indian banks, but when you look at the kind of prices, they’re not cheap relative to the rest of the world. As far as the technical part of the market goes, we’d like to see changes in the bond market, which is in the best interests of India though the challenge is to de-regulate in a measured way.
Do you see a pick-up in loan demand?
There are signs of an increase but it’s a little too early to tell because companies appear to be still cautious on capital investment. The biggest impact of the global meltdown has been psychological and people are taking a conservative view.
Have foreign banks in India been over cautious over the last few months?
Foreign banks, like the local banks, have shown prudence and when you’re going through a period of uncertainty, you do tend to be more cautious.
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