India key to HSBC's growth strategy with Asia in focus

Dubai: Global banking giant HSBC is beefing up its operations in India across all business segments as the economy has brushed aside the impact of the global financial crisis and is growing at the fastest pace in Asia after China, Stuart Davis, HSBC's India CEO told Gulf News in an Interview.

"We are seeing opportunities across the entire spectrum of our business in India. The economy is growing with huge potential supported by robust domestic demand. In response to this growing demand we are expanding our investment banking, wholesale and retail banking operations in India," said Davis.

India's $1.2-trillion (Dh4.4 trillion) economy expanded 8.8 per cent in the second quarter from the same period in 2009, the fastest pace among major economies excluding China and Brazil, following an 8.6 per cent gain in the previous three months.

India's growth outlook led Moody's Investors Service to raise the nation's local-currency rating on July 26 by one level to Ba1, the highest non-investment grade and affirmed the nation's foreign-currency debt rating of Baa3. Standard & Poor's and Fitch Ratings rate India's local-currency debt BBB-, the lowest investment grade.

Brief lull

"Given the pace of growth in the economy we need to keep pace. We are expanding our investment banking team in both mergers and acquisitions and capital markets-related business. In M&A, we see both internal and external demand surging in the months ahead," Davis said.

After a brief lull in the inbound and outbound M&A deals in India following the global financial crisis, Indian firms are back in the acquisition market. They have completed more than $26 billion worth of deals this year led by Bharti Airtel's $9 billion acquisition of the African operations of Kuwait's Zain.

Davis anticipates a big surge in both inbound and outbound M&A deals. HSBC plans to combine its advisory and financing capabilities to become a leading player in the M&A business.

Given the growth opportunities in India there is growing interest from companies abroad to enter India. Davis expects this to drive the inbound transactions. From a valuation point of view, he said, there are attractive acquisition opportunities in the developed world.

"We have the capacity to function both in an advisory role and involve our balance sheet wherever financing is required. We have a strong balance sheet to support rupee-denominated deals. In outbound deals we can always arrange finance through our global network in all major global currencies," said Davis.

Management depth

In its capital market business, HSBC is adding to its capabilities in India by hiring new talent. The bank aims to add new staff to its roughly 80-strong investment banking unit, strengthening its M&A advisory and equity capital markets businesses.

To bolster its investment banking business, HSBC recently appointed Sunil Sanghai as managing director and head of global banking in India from Goldman Sachs, where he was co-head of the investment banking division in the country.

"Sunil's appointment is an example of our continued focus on our global banking business in India. His experience will add to our coverage and management depth, and help us further develop our Global Banking capabilities and franchise in line with the HSBC Group's emerging markets-led and financing-focused strategy," said Davis.

HSBC is already a major player in the bond issues of Indian firms particularly banks in raising debt capital abroad. "In the debt market side of the business, historically we have been very active. We have been involved in just about every other bond issue. We are building up our capabilities and we have strong aspirations there for the next two to three years to grow up that business strong," he said

With the Indian equity market zooming to a 32-month peak recently, a host of companies are expected to enter the primary market with their IPOs.

Recent months have seen a slew of companies tapping the primary market amid optimism that their issues will comfortably sail through in the current bull phase. The biggest IPO of all time — that of Coal India — is likely to hit the market soon.

"There is a large IPO pipeline where we will be participating as underwriters. With the markets performing strongly we expect a slew of issuance from both private sector and public sector issuers to hit the market in the coming months," Davis said.

Dubai HSBC Holdings, Europe's largest bank, expects its retail banking business to return to profit next year after reporting losses in the past few years, said Stuart Davis, HSBC's India CEO.

"We are seeing a big qualitative improvement in our retail portfolio in India. After going through some losses in unsecured loans business we had scaled down our exposure in areas such as personal loans, credit cards and mortgages. With the improving credit quality we have stepped up our growth targets," he said.

HSBC's retail banking division lost $50 million (Dh183.9 million) in the six months to June 30, curbing overall profit before tax to $340 million, according to the company's financial report.

Losses at HSBC from retail banking in India, which includes credit cards, personal loans and mortgages, have totalled $533 million since 2005, according to the company's income statements.

The value of loans and advances to customers declined to $4.8 billion in 2009 from $7.22 billion two years earlier. Improved credit data and strong due diligence has helped HSBC to scale down its bad debt costs in the retail business.

"We slowed down lending as part of our global strategy to strengthen our balance sheet. We are seeing a big decline in impairments and we are stepping up lending," he said.

HSBC expects a big leap in its retail business next year with its recent acquisition of Royal Bank of Scotland Group's (RBS) retail and commercial banking businesses in India involving portfolios with a gross asset value of $1.8 billion as at March 31, 2010.

The acquisition, which is subject to regulatory approvals, is expected to be completed in the first half of 2011. The global group said it will apply to the Reserve Bank of India for branch licences to support the acquired businesses.

Currently in India, RBS' retail and commercial banking businesses have 1.1 million customers served by over 1,800 staff through 31 branches.

"This transaction has given us a big push in terms of market-reach and retail asset base in India. We see this as a major turning point in our retail expansion in the country."