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Gunit Chadha is a member of the global group executive committee of Deutsche Bank and is also the co-CEO of the bank’s Asia-Pacific operations. In an interview with Somasroy Chakraborty, Chadha says while it is important to build inclusivity, the last mile must be built by players who understand the space better. Edited excerpts:
The Reserve Bank of India (RBI) has emphasised that foreign banks operating in India should convert its branches into subsidiaries and promised near-national treatment in return. Has Deutsche Bank decided on taking the subsidiary route for its India operations?
India is a strategic market and we see ourselves growing significantly here. We are currently evaluating the subsidiarisation proposition. One area where we definitely seek more flexibility is on priority-sector lending. Let us take agriculture. Will foreign banks have to lend to the agriculture sector when they may not have the expertise to do the same even in their home markets? It is important to build inclusivity but equally important is that the last mile be built by players who understand the space better, while the economic cost of that build-out can be shared by all.
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What are the bank’s plan for India?
In India, Deutsche Bank has a very well-diversified franchise. Trade and cash management, foreign exchange, structured financing and investment banking have contributed significantly to the bank’s bottom line. In addition, our retail banking, asset and wealth management are nicely profitable on a stand-alone basis. Deutsche Bank India is in our top four franchises in Asia-Pacific. We are fully committed to India and have infused around Rs 400-crore capital in March 2014.
It is almost two years since you joined the bank’s global group executive committee and became the co-CEO of the Asia-Pacific region. How has been the journey?
It has been a positive experience and a substantial remit. At the global level, the inter-play of growing regulation and government intervention, cross-winds of divergent global economic macros, transformation of investment banking and markets business models, resource re-allocation driven by capital and leverage considerations beyond strategic and financial metrics and, finally, the significant change of culture have been nothing short of titanic shifts in the industry. Asia-Pacific may not have been the epicentre of each of the above but has still needed deft re-calibration to changing emerging and developed markets growth continuum. Through increased revenues and improved operational efficiency, Deutsche Bank’s bottom line in Asia-Pacific more than doubled in 2013 compared to 2012.
What is Deutsche Bank’s strategy to sustain its growth globally and regionally in the current uncertain environment?
Globally, we are totally focused on delivering against the bank’s 2015-plus strategic targets, which include delivering 12 per cent after-tax return on equity, 10 per cent core tier-1 capital and €4.5 billion reduction in operating costs. We are well on track to achieve these financial goals as well as making substantial progress in embracing our new values and belief culture framework which puts clients right in the centre of what we do. In Asia-Pacific, all Deutsche Bank’s businesses have scale as we are among the top three in investment banking and markets, top four in transaction banking and top five in asset and wealth management. In 2013, we optimised our Japan and Australia business models to positive outcomes. In 2014, we are focused on building the large emerging markets of China, India and Asean.
Is the political uncertainty and regulatory environment affecting India's position as an investment destination?
It is true that investors are keenly watching the elections. While there are many challenges — supply-side constraints, slow implementation of infrastructure projects, legal and taxation hurdles — foreign investors clearly recognise the fundamental demographic drivers in India. The West still looks to the East when it comes to build-out of the FDI (foreign direct investment) consumption themes. FDI confidence in infrastructure build-out, however, remains on the sidelines. On portfolio FII (foreign institution investor) front, even while net inflows to emerging markets are challenging, India is clearly the preferred destination for emerging market dedicated portfolio money. We are positive on the upside on India and expect strong trajectory in the equity markets in 2014-15.
What is your outlook on interest rates?
It is a mixed bag. Globally, we feel the US interest rates are likely to go up in mid-2015. ECB (European Central Bank) and Japanese interest rates are likely to have a stable-to-lower bias. In Asia, we expect higher rates in Indonesia, Malaysia and the Philippines. In India, no rate hikes are expected. It is Deutsche Bank's view that as retail inflation moderates to 6 per cent in the latter half of the year, RBI may cut policy rate by 50 bps in the second half of 2014.
