 "We are focused on banking businesses in India: Brijesh Mehra")
Brijesh Mehra, managing director and country head-international banking for India, Royal Bank of Scotland, talks to Neelasri Barman on their plans in India and the challenges ahead. Edited excerpts:
RBS' plan to sell retail and commercial banking in India to HSBC was called off as the deadline lapsed. What will be your strategy now?
RBS remains committed to an international footprint in 37 countries, including India, and we're well ahead of recovery targets since the financial crisis in 2008. We are focused on our markets, international banking and private banking businesses in India. We continue to provide the best in class solutions to our corporate, financial institutions and wealth management clients.
In 2012, we changed the size and structure of our business to adjust to regulatory and economic conditions, by focusing on our product strengths of debt financing, transaction services, global markets and trading, as well as risk management. In these go-forward businesses, we are in a fantastic shape, being ranked among the top five globally.
We continue to deliver to our strengths in fixed income, foreign exchange, risk management, transaction banking.
We have had a strong start in 2013, with RBS being, year-to-date 2013, the number one book-runner in corporate G3 issuance from India. In the transaction services business, RBS has introduced innovative products, including our remote cheque scanning solution, using the cheque truncation system that provides instant credit on cheques to our clients anywhere in the country.
We continue to grow our client base by helping Indian corporates expand abroad and also enabling global companies that are coming to India. India remains a key market with strategic importance for the RBS group and is the country with the third largest headcount for RBS globally.
Will you be hiring to support your growth plans in India?
Yes, we are hiring selectively. We continue to recruit graduate trainees and focus on professional learning, training and development for our employees.
What challenges continue to exist for foreign banks in India?
The biggest one remains targeted lending, especially true for any foreign bank in India without a big branch network. This will continue to be a big challenge for banks that have more than 20 branches. As banks go for the subsidiary route, targeted lending will become one of the biggest challenges. The other challenge is the slow legal environment, as debt recovery is an issue which impacts the banks.
How long do you think the Euro zone will reel under crisis?
The issues do not have an instant solution and will likely take a fairly long time to fix. One key reason, in my opinion, is because the cost of production in Europe needs to be significantly reduced. The Euro zone also has relatively more rigid labour laws, unlike the US for instance, and is less adaptive when compared to emerging markets. Keeping in mind all these factors, it might take more than a decade for a full recovery.
FY13 was a record year for flows from foreign institutional investors (FIIs). What is the outlook for the rest of calendar year 2013?
FII flows for the rest of 2013 look reasonably robust, as there is a lot of liquidity in the market globally. However, equity markets are dependent on other factors besides FII flows, so the effect will be more nuanced. I expect flows will continue across debt and equity for the rest of the year, as these are driven by liquidity and not by any extraordinary yield that India currently offers to the global markets.
Do you expect Indian foreign bond issuances to continue to be a hit, on the back of global liquidity for the rest of 2013?
Liquidity in the international market will likely create a significant amount of foreign bond issuances. In 2012, foreign bond issuances from India were to the tune of $10 billion, a small number for a $1.7-trillion economy. Evidence of continuation of this trend is that in the first three months of this year, RBS has been book runner for several landmark bond issues from India, including Power Grid Corporation, Tata Communication and Reliance Industries.
However, this global liquidity does not extend to banks as much, due to the de-leveraging process since the global financial crisis. At RBS, as an example, we have successfully reduced our balance sheet from $2.7 trillion to $ 1.5 trillion over the past four years. It is critical to note that through this period, RBS continued to support its chosen clients, especially in the UK. However, this gives you an idea of the scale of de-leveraging the banking industry is undergoing. Having said that, there are exceptions - primarily the Asian, Australian and Canadian banks, whose balance sheets were relatively untouched by the financial crisis.
RBS' plan to sell retail and commercial banking in India to HSBC was called off as the deadline lapsed. What will be your strategy now?
RBS remains committed to an international footprint in 37 countries, including India, and we're well ahead of recovery targets since the financial crisis in 2008. We are focused on our markets, international banking and private banking businesses in India. We continue to provide the best in class solutions to our corporate, financial institutions and wealth management clients.
In 2012, we changed the size and structure of our business to adjust to regulatory and economic conditions, by focusing on our product strengths of debt financing, transaction services, global markets and trading, as well as risk management. In these go-forward businesses, we are in a fantastic shape, being ranked among the top five globally.
More From This Section
We continue to deliver to our strengths in fixed income, foreign exchange, risk management, transaction banking.
We have had a strong start in 2013, with RBS being, year-to-date 2013, the number one book-runner in corporate G3 issuance from India. In the transaction services business, RBS has introduced innovative products, including our remote cheque scanning solution, using the cheque truncation system that provides instant credit on cheques to our clients anywhere in the country.
We continue to grow our client base by helping Indian corporates expand abroad and also enabling global companies that are coming to India. India remains a key market with strategic importance for the RBS group and is the country with the third largest headcount for RBS globally.
Will you be hiring to support your growth plans in India?
Yes, we are hiring selectively. We continue to recruit graduate trainees and focus on professional learning, training and development for our employees.
What challenges continue to exist for foreign banks in India?
The biggest one remains targeted lending, especially true for any foreign bank in India without a big branch network. This will continue to be a big challenge for banks that have more than 20 branches. As banks go for the subsidiary route, targeted lending will become one of the biggest challenges. The other challenge is the slow legal environment, as debt recovery is an issue which impacts the banks.
How long do you think the Euro zone will reel under crisis?
The issues do not have an instant solution and will likely take a fairly long time to fix. One key reason, in my opinion, is because the cost of production in Europe needs to be significantly reduced. The Euro zone also has relatively more rigid labour laws, unlike the US for instance, and is less adaptive when compared to emerging markets. Keeping in mind all these factors, it might take more than a decade for a full recovery.
FY13 was a record year for flows from foreign institutional investors (FIIs). What is the outlook for the rest of calendar year 2013?
FII flows for the rest of 2013 look reasonably robust, as there is a lot of liquidity in the market globally. However, equity markets are dependent on other factors besides FII flows, so the effect will be more nuanced. I expect flows will continue across debt and equity for the rest of the year, as these are driven by liquidity and not by any extraordinary yield that India currently offers to the global markets.
Do you expect Indian foreign bond issuances to continue to be a hit, on the back of global liquidity for the rest of 2013?
Liquidity in the international market will likely create a significant amount of foreign bond issuances. In 2012, foreign bond issuances from India were to the tune of $10 billion, a small number for a $1.7-trillion economy. Evidence of continuation of this trend is that in the first three months of this year, RBS has been book runner for several landmark bond issues from India, including Power Grid Corporation, Tata Communication and Reliance Industries.
However, this global liquidity does not extend to banks as much, due to the de-leveraging process since the global financial crisis. At RBS, as an example, we have successfully reduced our balance sheet from $2.7 trillion to $ 1.5 trillion over the past four years. It is critical to note that through this period, RBS continued to support its chosen clients, especially in the UK. However, this gives you an idea of the scale of de-leveraging the banking industry is undergoing. Having said that, there are exceptions - primarily the Asian, Australian and Canadian banks, whose balance sheets were relatively untouched by the financial crisis.