Business will be funded on a case-by-case basis
India has become the second-largest market for Standard Chartered Bank, globally. Asia, especially India, is now one of the critical markets for the bank.
By George Smith Alexander, TNN |
India has become the second-largest market for Standard Chartered Bank, globally. Asia, especially India, is now one of the critical markets for the bank. StanChart’s Asian operations are now headed by Jaspal Bindra, who is currently the director and head of Asia. Last month, he was also appointed a director of the bank, the main operating subsidiary of Standard Chartered. Mr Bindra, who joined the bank in 1998 as CEO India, led the acquisition of ANZ Grindlays.
These are difficult times for banks. What will be the impact of the subprime crisis on securitisation of consumer loans?
It’s too early to accurately discern the impact on the securitisation market for consumer loans. But it is clear, banks are more selective about their risk appetite, and the pricing for risk has undergone a fundamental shift which is likely to flow through to the consumer sector.
What would be your advice for corporates? Should they postpone their fund-raising plans or should they go ahead now?
Each proposed business deal is evaluated on its own merit. And despite the generally tougher liquidity backdrop, Standard Chartered is continuing to fund projects and do deals. At the right time, right place and right price, business will continue to be funded, but more on a case-by-case basis. Putting off all transactions will create a logjam of backed-up demand and make the resumption of normal conditions slower. If the business case is compelling,
business will still be written.
There has been a tightening of activity across Asia, but it is probably too early to discern the full ramifications of the subprime issue. In India, there has been some impact on companies refinancing their overseas loans. But this is unlikely to have any significant impact on overseas acquisitions by Indian companies.
Has the subprime crisis reduced liquidity for Indian paper in the global markets?
The subprime crisis has resulted in lower liquidity for credit across the globe, including Indian papers, and spreads on Indian papers have widened by almost 100 bps. However, we expect the market to improve and turn around before the end of this year. Given that India has not had any significant impact on account of the subprime issue, the current levels available on Indian paper look quite attractive.
These are difficult times for banks. What will be the impact of the subprime crisis on securitisation of consumer loans?
It’s too early to accurately discern the impact on the securitisation market for consumer loans. But it is clear, banks are more selective about their risk appetite, and the pricing for risk has undergone a fundamental shift which is likely to flow through to the consumer sector.
What would be your advice for corporates? Should they postpone their fund-raising plans or should they go ahead now?
Each proposed business deal is evaluated on its own merit. And despite the generally tougher liquidity backdrop, Standard Chartered is continuing to fund projects and do deals. At the right time, right place and right price, business will continue to be funded, but more on a case-by-case basis. Putting off all transactions will create a logjam of backed-up demand and make the resumption of normal conditions slower. If the business case is compelling,
business will still be written.
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What has been the effect of subprime on other corporates across Asia? Do you see their acquisition plans being postponed as credit spreads have widened? There has been a tightening of activity across Asia, but it is probably too early to discern the full ramifications of the subprime issue. In India, there has been some impact on companies refinancing their overseas loans. But this is unlikely to have any significant impact on overseas acquisitions by Indian companies.
Has the subprime crisis reduced liquidity for Indian paper in the global markets?
The subprime crisis has resulted in lower liquidity for credit across the globe, including Indian papers, and spreads on Indian papers have widened by almost 100 bps. However, we expect the market to improve and turn around before the end of this year. Given that India has not had any significant impact on account of the subprime issue, the current levels available on Indian paper look quite attractive.
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Indian regulators and the government are looking at exchange-traded rupee futures. Do you feel that this will take off?
The Reserve Bank of India (RBI) over the past few months has been exploring the possibility of an onshore rupee futures market with great interest — we’ve shared with them our experience in other emerging markets. There is surely a latent demand for a rupee futures market from the retail segment, as this segment does not have a readily available platform to hedge their currency exposure. The currency futures market is also important, given India’s aspirations to move towards fuller capital account convertibility.
The success of the rupee futures market would hinge on broad-based participation from the retail as well as from the institutional side since we do not expect the contract to be immediately popular in the retail segment. Hence, the initial interest would have to be generated from other participants. But to generate this interest, it would be critical that there is operational and regulatory ease in dealing on the exchange, else interest will wither. Clearly, there should not be any regulatory arbitrage available to market participants.
What is the big thrust for StanChart in India and the region?
We are the largest international bank in South Asia — and we clearly want to strengthen our position further. India is now the second-largest contributor to group profits, and is a key market.
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Currently, our focus in India is on strong organic growth and it’s a strategy that is paying off — we have more than doubled our profits in the past two years. Where it makes sense, we will also look at the inorganic route within the existing regulatory framework — the UTI Securities acquisition is an example. But we see an excellent opportunity to expand our existing businesses at a healthy pace across the region. There are fears that the US and some European countries could see recession in the near future. Do you see this affecting Asian economies? Is StanChart changing its business plans or its revenue targets from the region?
Given the increasingly interconnected nature of the global economy, potential downturns in Europe and the US will, of course, have an impact in Asia. However, it is also important to note that Asian economies are better diversified than during the past downturn, and generally have stronger fundamental positions reflected in strong fiscal reserves, currency stability and balance of payments positions. Importantly, inter- and intra-regional trade flows have significantly expanded over the past decade — that is, Asian firms are trading far more with other Asian firms and with the African and Middle Eastern corporates and institutions, potentially lessening the impact any US or European-led downturn may have. Standard Chartered is not changing its business plans or overall strategy and has full confidence in its decision to focus on its business footprint of Asia, Africa and the Middle East.
In the global scheme of things, India brings in substantial revenues for StanChart. Do you see India continuing to be the number two contributor?
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Being the No. 2 contributor is a big motivator for the India team. The point is that wherever India may stand in the pecking order, it will always be a core market for us and we want to be among the largest banks in the country — not just the largest international bank. For the bank, the key strategy is “growth” in our core markets such as India. It is our stated objective that we will look at every opportunity to grow in India — both organically and inorganically. The potential for both our wholesale and consumer banking businesses in India is huge. The wholesale business is growing faster now — and several of the Indian clients are among our largest clients, globally, but, in the long term, the consumer banking business will become a significantly large piece. Download
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