It’s been over a year since you took charge. How do you see the economic recovery?
Initially, when there was a bit of buoyancy in demand, people were unsure whether to project that into the future or whether it was due to pent-up demand and revenge shopping. Now that the demand has sustained, there is a view that something structural is happening, causing consumers to keep shopping. The level of hope and optimism I see is unsurpassed. There is a belief that part of the buoyancy big and medium-sized companies are seeing is because of some market share they have taken from the businesses that could not survive. At the same time, there is a broader phenomenon of those with higher incomes and those employed in the formal sector spending more, while FMCG sales are struggling because of inflation and maybe other aspects. So, just as the top half is still in surplus after spending, it is safe to assume that the bottom half has not yet recouped. As a country, we have to be mindful of these two pictures.
What was the idea behind the L&T MF acquisition? Do you see a role for MNC banks in retail?
The sense we all have is that India is at a significant cusp of expanding the household wealth of the affluent, the high net worth and the ultra-high net worth. We expect the list of people using the capital markets to grow. The 2.2 million customers of L&T Mutual Fund will soon start receiving their statements with the HSBC hexagon logo. That potentially enables us to embrace them as bank customers should they wish to. We expect the process to get completed before December.
A bank like ours serves customers having a particular income, wealth and aspiration profile. We see India as one of the brightest spots for corporate/wholesale, retail and wealth. We have a competitive advantage across certain product and service segments. Moreover, we also have an edge in being more longer term in our approach with increased customer focus in a dynamic and competitive market. Our value-based approach stands out with consistently positive feedback from our customers and we do not encourage a hard-charging sales culture.
Second, as people become more affluent, many send their kids abroad. HSBC is the only bank with a high-street presence in India and the English-speaking world. Knowing that you can open your account before you leave India is comforting.
Would you focus on the mass market?
The cost of acquisition of a consumer can be high. The acquisition channel for mass markets would be the corporate account. Corporates have employees at different levels. Since we do not have an extensive branch network, we will have to play to this segment through the corporate route.
We do have open sourcing for credit cards, but our premier card is so feature-rich that they have to be bespoke. For instance, our premier card allows the cardholder to walk into any branch and collect $2,000 if his wallet is lost while travelling internationally. If I sell this to a population that is not travelling, it does not have value. At the lower level, I have to have the technology to match services that the private banks offer, or I have to offer lower rates, which we do with salary accounts.
Which business vertical is the biggest for HSBC?
As of now, we are a predominantly wholesale bank, and we are the biggest among the multinational banks. We want to grow our retail business. Our thinking is to see if there is a way to expand retail because technology enables that. We will now go more granular within wholesale and open far more accounts than we used to. People who want to bank with us have growth and global ambitions. On the retail side, we are in the midst of a drive to let salary account customers know that they can get the best rates and are issuing credit cards based on segmentation.
There have been no international bond issuances from India. Has the dollar market dried up for corporates?
Since the start of the financial year, international bond markets have not been conducive to issuers because of US interest rate uncertainty. This is the longest such pause I can remember. Therefore, you see more activity in bank loans, and it is in times like this that corporates remember their core banks. We are also core bankers to almost all the big industry groups. There is no constraint in funding. What has changed is pricing.
How do you think India can attract foreign capital?
We must ensure that the growth drivers remain robust and that people think it is better to come to India and get mid-teen returns. That has been the driver of foreign investment. So, to get these investments, the valuations must improve, or returns change.
A member of the RBI’s MPC has said that interest rate hikes cannot attract capital, and we need to calibrate hikes…
It speaks a lot about the credibility of the RBI that the external members are telling them to pause, and the internal members are saying we got to do more. In an ideal world, the RBI has to only focus on growth, employment and inflation. I agree that raising interest rates now will not attract fixed-income investors. Unfortunately, financial markets interpret everything as they want to, and a lack of commensurate response (to US rate hikes) could backfire. The third thing is that the country’s ability to absorb higher interest rates is much stronger than what we would have assumed three months ago. No central bank has the luxury of ignoring the market, but at the same time, I think the dollar peak may not be too far away.
How serious is the current account deficit problem?
I think the overall narrative on the current account may be slightly exaggerated. It is essentially a problem with the trade account, partly because we have not had enough investment or capacity in manufacturing, which is now being addressed by the production-linked incentive schemes. Some of the correction will take place through interest rates and exchange rates, which are being done by policymakers. Production-linked is slower because you cannot create factories overnight.
Overall, if you are looking at a trade deficit of $26-27 billion, around $10 billion can be covered by service exports and another $6 billion through remittances. About $5 billion is coming in through foreign direct investment. If foreign investors continue to sell $1-2 billion a month, you are looking at a gap of $100 billion a year, and with the forex reserves at around $530 billion, we should not be worried.
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