 "2014 will be another lacklustre year for investment banks: Jaideep Khanna")
Year 2013 was not easy for investment banks in India. The uncertain economic environment and volatile market conditions discouraged companies from equity issuances, while the number of merger and acquisition (M&A) deals was fewer than previous years. Barclays India has been focusing on the corporate and investment banking business after it exited from its retail operations in 2011. Jaideep Khanna, country head and CEO of Barclays India, cautions 2014 could be another challenging year for investment banks in the country, though he remains confident of the growth in the foreign lender's businesses. He shares his views on the economic environment and the details Barclays' future plans in India, with Somasroy Chakraborty. Excerpts:
Were you surprised with the Reserve Bank of India's (RBI) decision to increase the repo rate?
With the currency volatility, I personally believed RBI would not hesitate to increase the repo rate. While the rate hike is being
projected as a measure to fight inflation, I think the currency element was also in the back of the mind of RBI governor. So, the short answer is, I was not surprised with RBI's actions on January 28.
Do you expect RBI to raise the repo rate further in 2014?
It is difficult to predict. We will have the general elections in the middle of this year. Also, with the beginning of Fed tapering, volatility is expected to return to emerging markets including India. On the other hand, inflation is expected to show a declining trend. I don't think domestic factors will put upward pressure on interest rates, but global factors may spoil the situation.
2013 has been a difficult year for investment banks in India. What is your outlook for 2014?
I think 2014 will be another lacklustre year for investment banks in the country. We are positive on the DCM (debt capital market) business. We expect the number of offshore debt issuances from Indian financial services firms to increase. But the ECM (equity capital market) business is unlikely to have a strong year. This is primarily because of the election and the political uncertainties surrounding it. In M&A, the valuations appear attractive, but I don't expect the situation to be dramatically better. Inbound M&A transactions will continue to remain slow till there is clarity on the political environment. I expect the second half of 2014 to be better than the first half. Market does not like uncertainties and hopefully in the second half, we will have better clarity on the political and economic environment.
Barclays India now primarily focuses on investment banking business. Given the environment, do you expect your business growth to decelerate this year?
Our corporate and investment banking operations are doing well. The corporate banking segment has seen rapid growth and I expect it to continue even this year. I expect our investment banking business to perform a little better than 2013. In addition, we have the cash equities and equities research business, which is a fairly new business. Our wealth management franchise is well established. So overall, I don't expect a dramatic growth in our businesses but we will see some growth.
RBI has now given foreign banks the option to operate through a subsidiary in India. Does Barclays plan to create a subsidiary here?
We have reviewed the guidelines, but we have not yet come to a definitive conclusion. But in the near-term, we do not have plans to set up a wholly-owned subsidiary in India. We will wait for the global regulatory environment and the domestic macro-economic situation to stabilise. We will continue to weigh our options but in next three-to-six months, we are not going to create a subsidiary here. We currently have six branches in India and we will continue to operate through these branches.
Were you surprised with the Reserve Bank of India's (RBI) decision to increase the repo rate?
With the currency volatility, I personally believed RBI would not hesitate to increase the repo rate. While the rate hike is being
projected as a measure to fight inflation, I think the currency element was also in the back of the mind of RBI governor. So, the short answer is, I was not surprised with RBI's actions on January 28.
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Do you expect RBI to raise the repo rate further in 2014?
It is difficult to predict. We will have the general elections in the middle of this year. Also, with the beginning of Fed tapering, volatility is expected to return to emerging markets including India. On the other hand, inflation is expected to show a declining trend. I don't think domestic factors will put upward pressure on interest rates, but global factors may spoil the situation.
2013 has been a difficult year for investment banks in India. What is your outlook for 2014?
I think 2014 will be another lacklustre year for investment banks in the country. We are positive on the DCM (debt capital market) business. We expect the number of offshore debt issuances from Indian financial services firms to increase. But the ECM (equity capital market) business is unlikely to have a strong year. This is primarily because of the election and the political uncertainties surrounding it. In M&A, the valuations appear attractive, but I don't expect the situation to be dramatically better. Inbound M&A transactions will continue to remain slow till there is clarity on the political environment. I expect the second half of 2014 to be better than the first half. Market does not like uncertainties and hopefully in the second half, we will have better clarity on the political and economic environment.
Barclays India now primarily focuses on investment banking business. Given the environment, do you expect your business growth to decelerate this year?
Our corporate and investment banking operations are doing well. The corporate banking segment has seen rapid growth and I expect it to continue even this year. I expect our investment banking business to perform a little better than 2013. In addition, we have the cash equities and equities research business, which is a fairly new business. Our wealth management franchise is well established. So overall, I don't expect a dramatic growth in our businesses but we will see some growth.
RBI has now given foreign banks the option to operate through a subsidiary in India. Does Barclays plan to create a subsidiary here?
We have reviewed the guidelines, but we have not yet come to a definitive conclusion. But in the near-term, we do not have plans to set up a wholly-owned subsidiary in India. We will wait for the global regulatory environment and the domestic macro-economic situation to stabilise. We will continue to weigh our options but in next three-to-six months, we are not going to create a subsidiary here. We currently have six branches in India and we will continue to operate through these branches.