When HSBC (the erstwhile Hongkong Bank) set up the country’s first automated teller machine (ATM) in 1987 in good ol’ Bombay, it was an event. As you read this, the world’s costliest banking stock is that of HDFC Bank. It helps put distance in perspective.
When you plot desi versus foreign banks, you don’t get neat lines or a binary to work with. That’s because the world over, financial services is a highly regulated industry.. What’s true of one jurisdiction does not hold in another; it’s pointless to plea bargain on reciprocity. And in a globalised world what’s cutting edge can quickly become commoditised.
In the early to mid-90s foreign banks had a head start. Technology helped them to create and charge handsomely for “premium services” such as cash management, private banking, 24X7 phone banking, Internet banking and structured corporate banking solutions. Citi, HSBC, Standard Chartered Bank or an ANZ Grindlays were “aspirational brands”; it helped that they had been around for over a 100 years (in the case of the UK-based banks, over 150 years!) and had traction with the well-heeled. So even as they were curtailed by regulation, it helped them to pocket good fee-income; they were in the “knowledge business” and were not “asset-heavy” like our state-run banks.
The advent of new age private banks and the changes adopted in the wider, local universe of banking saw them lose their edge. Read HDFC Bank, ICICI Bank, Axis Bank and the better among the state-run banks who saw the writing on the wall. Two-and-half decades into reforms, you don’t get customers to walk into a bank just based on your pedigree or the colour of the equity capital. And in the post-Lehman world, foreign banks’ home-office concerns took centre-stage and their Roman outposts came lower down in the hierarchy of importance.
Yet, you can’t get away from the fact that in India foreign banks are in a class of their own. On the business side, they cater to the kind of clientele that’s not credit-starved and in need of a bank which is more than just another vendor. On the regulatory side, they can’t open as many branches as they may want to. So what’s a good foreign banking model?
Pramit Jhaveri, CEO, Citigroup (India), the largest foreign bank in the country, sums up the value proposition: “We don’t want to be all things to all comers. You may want to hawk an entire suite of services across retail, corporate and investment banking, but you have to remain relevant to your clients.” He does not debunk a debate on a full-service foreign bank versus one with a boutique approach. “There are foreign banks which hawk the entire suite in some countries, but not so much in India. As for us, we are a full-service bank wherever we operate,” he says.
Then again, if HSBC told you to ‘Think Global, Go Local’ 15 years ago, HDFC Bank armed with technology will soon tell the world, they can also do so. Investors had started to think so a decade ago; so much so that P. Leeladhar, then deputy governor of RBI, in 2007 referred to HDFC Bank and ICICI Bank as “foreign-owned” (without naming them) given the substantial cross-border equity holding in them!
We have come a long way for sure. Look deeper into BrandZ’s Top 100 Most Valuable Global Brands of 2015. HDFC Bank is ranked 74th position in the study conducted by WPP’s marketing and brand consultancy agency Millward Brown, which specialises in brand equity research and brand valuation. The bank sits alongside the likes of Apple, Google, Facebook, Twitter, Coca Cola, Wells Fargo, GE, and Alibaba. More importantly, look out for the brands HDFC Bank is ahead of; and the striking distance it is in with regard to other banking behemoths.
So how’s one to situate foreign banks in India; and by extension view the desi versus foreign banks issue? R Gandhi, deputy governor of the Reserve Bank of India tied up the strands neatly: “India offers ample scope for growth for the foreign banks, more specifically in the highly sophisticated and profitable markets of trade finance, investment banking, treasury banking and personal banking. The regulatory and supervisory approaches are, by and large, common and non-discriminatory. Welcome to India!”
BW Reporters
Raghu Mohan is an award-winning senior journalist with 22 years of experience. He has worked for BW Businessworld since December 2006, and is currently its Deputy Editor. His area of expertise is banking – commercial, investment, and the regulatory. Previous stints include those at The Financial Express and Business India.