'Markets need to be stable for IDR issue'

The global financial crisis has not affected Standard Chartered's plans for India, which it says is the most valuable market for the bank. The group which injected $500 million (around Rs 2,500 crore) in 2008 may be the first foreign player to issue India Depository Receipts but is waiting for the markets to improve.

Standard Chartered CEO-Asia Jaspal Bindra spoke to Anirudh Laskar and Sidhartha of Business Standard about the bank's plans and his assessment of the situation. Excerpts:

How do you view India from the perspective of the global slowdown?

Globally, things are still going to be quite slow. There is still a lot more deleveraging in the financial services sector yet to happen. Every level of deleveraging will create a credit contraction, and so we do not see a huge amount of growth happening immediately.

There will also be start of the contagion effect from the financial services industry into the real economy. Within the financial service industry, credit card crunch is still to happen. We think the European markets would get worse.

Asia will be relatively better than the rest of the world. While banks in Asia are far less leveraged, the policy response from the regulators and the governments has been far more prompt and far more accurate.

What we will see in Asian banks, as much as in the Indian banks, is that the performance will be low but that is not because of solvency, but largely due to weak market conditions.

There will be a shift of economic power from the West to the East.

Among the economies where you have a strong presence, where do you see the least impact of the slowdown?

The least impacted will be Africa. Among the Asian economies, Singapore will get most affected because it has a larger dependence on the western world and the US.

For China and India, things will not get as bad as Europe and America.

How do things look like from Standard Chartered Plc's point of view, especially in the wake of the rights issue?

We have sort of come out of the slowdown faster than our international peers. But it does not show because the industry as a whole has been beaten down so much.

The biggest advantage is that we do not have any issue about our capital although the market has been battered. We have successfully completed our rights issue, with having a huge gap between the quoted price and the price at which the rights were issued.

Has the focus on Asia and Africa helped you and will there be a change in strategy?

After an existence of 150 years, for the first time not being in Europe and America has been a blessing. But even with the existing markets, we could have slackened due to the turmoil.

For long, we have been known as a boring bank, but we have managed to tide over the crisis, largely because we have always maintained the philosophy to keep our asset-deposit ratio below 100 per cent across markets.

Most banks in the West do banking with their asset-deposit ratio as high as 150-250 per cent.

For instance, Northern Rock had a very healthy capital adequacy, but their asset-deposit ratio was 340 per cent which led to a quicker fall.

People do question us why we sold off our asset management business. But, we think we have done well by doing so. We know the areas to grow and which are not the growth areas.

The delinquencies in unsecured credit businesses such as credit cards have gone up substantially over the past few quarters. What has been the experience at Standard Chartered India?

When you are in the unsecured businesses the strain is likely to be more as compared to secured credit.

In unsecured lending like personal loans and credit cards, banks earn huge margins so the businesses are lucrative. The absolute losses are not that relevant.

The margins are far narrower for corporate lending where the presence of strong risk management capabilities is indispensable.

So, what will be your strategy and how do you see things evolving till the first half of 2010?

We want to remain disciplined. Although it is very tempting to go for building additional capacities, we are looking at consolidating our businesses. We are not really going for new customers right now, but we are trying to deepen our relationships with existing customers.

We want to grow our private banking business, principal finance and third-party funds in real estate and infrastructure where valuations are far more reasonable now.

Similarly, in areas of acquisitions, we have a lot options that are far more tempting than ever before. But, we do not want to rush into things that are broken or something we do not understand.

What about capital raising plans and your plans for an India Depository Receipts issue?

We would be quite happy to explore the possibility of having an IDR in India, but we will wait for the right time. The markets have to be far more stable than what they are now.

There are a few things which are little onerous. Issues like taxation and quarterly reporting might need to be re-looked.

What are your expectations from RBI on the review of norms for foreign banks?

I am not sure whether RBI would come out with a clear roadmap on liberalisation in April, because you need a government for that.

But, if it happens, we would welcome the move. Interest rates around the world has fallen, and they should go down further here.

Will you focus on branch expansion or acquisitions?

We will be happy to look at both. Our focus would be more on branch expansion, but we would also look at acquiring existing players.

Citibank reported a growth in credit losses from its India business? Are you in a similar situation?

We had a challenge with our consumer finance business, Prime Credit, but we recognised it and we wound it up last year. We were looking at mass distribution of credit cards and we were thinking of launching it in the middle of last year, but we pulled out.

Credit cards business now constitutes a smaller proportion of our business, but we are happy because it could have now become a bigger part of our losses by now.

Will the Satyam fraud affect the way foreign investors look at India?

No. This is because such an issue has come up for the first time, and is not something repetitive in India. Two, even though it forms an important part of the iconic industry, Satyam is not in the same league like Wipro, Infosys or TCS.