'Our growth areas are SMEs and wealth management'

BANKER SPEAK: Neeraj Swaroop

Standard Chartered Bank recently announced the acquisition of American Express Bank for $860 million in cash. This purchase would give the UK-based bank an expanded presence in India and boost its recently launched private banking business in the country. The acquisition came after Neeraj Swaroop, CEO of Standard Chartered in India, assumed responsibility for the bank's operations in Nepal, Mauritius and Afghanistan.

In an interview with Anita Bhoir and Rajendra Palande, Swaroop said the new responsibility is exciting and he is looking forward to visit Mauritius. Mauritius' financial services business is big as it is a tax heaven. Afghanistan is important as most of the World Health Organisation (WHO) funding and other aid is routed through it. Excerpts:

What's Standard Chartered Bank's business strategy in India?

Standard Chartered Bank (SCB) is similar to any other Indian bank, in terms of strategy. Our wholesale banking business focuses on the entire spectrum ranging from emerging corporates, small and medium enterprises (SME) and large corporates.

It is doing well and will continue to grow at 20 per cent to 25 per cent. We want to expand the SME business as it accounts for around 20 per cent of our revenues. The small and medium enterprises business segment is growing at upwards of 50 per cent and will continue to report robust growth.

As a strong transaction driven bank, we can add value to our SME business. Over the last few years, we have been focussing on SMEs, wealth management, third party distribution of mutual funds and insurance products. These have been growth areas for us.

Your bank does not appear to be aggressive on the retail banking front. Why is this so?

On the consumer side, we have been concentrating on expanding volumes and increasing profitability. We are focusing on the unsecured business including personal loans and credit cards. We have credit scoring and data mining capabilities to undermine competition in the unsecured business space.

The credit card business has reached a stage where sub-segments can be created within the existing customer base. With the annual fees going away, the cards market has seen a transition. If you do not get your customer segmentation right, you are in for trouble. At Standard Chartered, we have segmented the card base into profitable and high-end customers.

The wholesale banking business will continue to be strong, while the consumer banking business will be driven by SMEs, unsecured and wealth management. Profitability in consumer banking is lesser than wholesale banking.

What value does UTI securities bring to Standard Chartered?

The acquisition of UTI Securities enable us to supplement our wealth management business. The two organisations will work closer for the benefit of customers. UTI Securities is a good company with a good management.

It's a clean organisation and has a good platform for distribution of mutual funds and third party products. The assets under advisory with the bank are around Rs 10,000 crore.

What role will the non-banking finance arm, Prime Financial, play in India?

The NBFC is just one piece of our overall strategy. Our core strategy is to build the business through the 80 odd bank branches operating in 30 odd cities. We have received RBI (Reserve Bank of India) approval to set up two branches in Jalgaon and Siliguri.

If the policy allows, we would like to be present in all the top 100 cities in the country. The NBFC follows a business model that targets the mass market. We currently have 50 branches and will add another 50 in nine to 12 months. We are comfortable with our model and are expanding the business in a gradual manner.

What are the new lines of business where the bank sees growth?

Micro-finance is a growth area for us. We are a significant player in this space, with an exposure of about Rs 100 crore. We want to grow this business in the next 15 months to about Rs 500 crore.

We are also interested in participating in the financing of infrastructure projects under the public-private partnership model. The project finance division of the bank is looking into this area.

They foresee a huge opportunity in this space in the next three to four years. Given the constraints on external commercial borrowings, there are not too many options available. We could be a front for other funds or work in syndication.

Is it a conscious business decision to go slow in the housing loans business?

Our decision is determined by our balance sheet as housing loans require long term funding. We have decided to go slow on account of our balance sheet.

However, our housing loans portfolio is not small. Our total advances portfolio is Rs 30,000 crore and home loan portfolio is around Rs 7,000 crore, though it has remained stagnant.

In the last two years, the bank's profits have been largely driven by corporates raising funds overseas. How do you see the recent US subprime crises impacting the bank's India earnings?

The quality of credit out of India is better, compared with other countries. The Libor plus spreads for Indian corporates have increased by 150 to 200 basis points. In the immediate term, there would be no impact as banks depend on the local business and Indian corporates borrow in rupees.

The parents of foreign banks operating in India may see some impact. We have to wait and watch how the interest rate scenario pans out. The global trends are positive. It's turbulent, but there's no need to worry. The rising yen is a larger worry compared with the subprime crisis.