India the place to be in now, says HSBC India CEO Hitendra Dave

HSBC wants to fortify its position as a full-service foreign bank in the country. It recently got the Competition Commission of India’s nod for acquiring L&T Mutual Fund for $425 million — the global financial conglomerate’s largest inorganic move after it gobbled up IL&FS Investsmart for Rs 1,311 crore over a decade ago. HSBC India’s Chief Executive Officer Hitendra Dave spoke to Raghu Mohan on the business model and the scope and scale of the group’s ambitions. Edited excerpts:

What makes HSBC stick with its full-services banking model out here?

HSBC is the only full-service bank in the world. Around the world, we offer the full gamut of services -- from checking, mortgages, credit cards to investment banking, M&A, advisory services, debt and equity capital, trade and cash management. Look at the number of Indian students travelling abroad -- they need a bank account outside India. The universal full-service model has been a consistent model; it’s worked for us.

How do you answer the observation that the wholesale bank, in effect, subsidises the retail bank?

That might be an outsider’s view. And sometimes this view is limited by data or detail. The retail business gives us a stable pool of liquidity. One of the things companies and wholesale customers ask us is if we (will) provide them debt capital and banking loans. For that, I need a stable pool (of funds), or retail deposits. So, to say that it’s “subsidising” (retail banking) -- that I think is being slightly harsh on our retail (banking) colleagues. Apart from that, I think the brand -- and the brand is typically created through significant retail investment and marketing -- generates wholesale business. I think retail standalone is going to be an independent source of liabilities and assets, an independent source of transaction banking, forex, credit cards, mortgages, etc. Plus, increasingly we’re finding that a lot of our retail customers want to gear up into our wholesale proposition.

It was widely felt the stress on small and medium enterprises (SMEs) will be significant. HSBC has trebled its book size. What explains your bullishness on SMEs?

HSBC, at this point in time, considers India one of the most promising markets. As CEO, I have never seen an external environment as positive as the one we’re living in. We are in growth, customer acquisition, and balance-sheet expansion mode.

To the question on our expansion of the SME book, I think it’s a well-thought-through decision by the commercial banking management team. And we have put a high-quality team of relationship managers (for SMEs). We don’t treat them like SMEs, but like the companies of tomorrow. The SME book has grown to about Rs 10,000 crore, but it can be 3x of this in the next three years or so. We would still have only a very small market share. On that point, I would also say that our intention is to become much more of an Indian bank.

HSBC recently acquired L&T’s mutual fund (MF) for $425 million. What’s the scope of your wealth management ambition in India?

We are the largest distributors of MFs in the country, and I don’t mean just among international banks. We are able to provide bespoke services to the affluent and above category of customers. We moved away from incentives linked to sales about 10 years ago and are only aligned to the customers’ interests. The relationship manager is not forced to sell products. We have just made an announcement to acquire L&T MF after having received the Competition Commission of India’s approvals. We want to get into “manufacturing” (of products), which will allow us to serve a large number of new customers. And eventually, as they become familiar with HSBC’s systems, processes, and value propositions, we hope there will be a migration of some of those customers to our other financial services and products.

A decade ago, HSBC had taken over IL&FS Investsmart for Rs 1,311 crore, but that story did not pan out the way it was meant to. What makes you confident this time around with the L&T MF acquisition?

Like with all big groups, you may have made investments that work and those that haven’t worked. When we acquired the IL&FS Investsmart, I think the main idea at that time was to look at the broking platform, but maybe, we were a little ahead of our time. And as a management team, we have to take the blame for not executing it. But in terms of what’s different between then and now, I think it’s the size of the wealth management business which has exploded in India. If there’s a right time, it’s now because the size of the cake is increasing. And our ability to get a greater slice of the cake is also increasing.