Interview with Subhas DeGamia, ANZ Chief Executive India
Andrew Cornell: Subhas, ANZ established its Mumbai branch in 2011 and the business today supports top tier institutional and corporate clients in India and across ANZ’s other 32 markets, with a focus on financing and risk management needs. Given ANZ is not seeking a retail base, is it necessary to have more branches?
Subhas DeGamia: The new branches will complement our existing branch in Mumbai by enabling greater coverage and connectivity for our clients. And over time, we will seek to broaden our franchise in the country to further support our customers in the region.
I think it is important to remember India is a vast country with diverse cultures and different ways of doing business. It takes a fair bit to be close to your customers - and it is important to be close to them.
The three branches will give us a very good spread across the entire country – with a presence in the North (Gurgaon), West (Mumbai) and South (Bangalore). All three locations are strategic vantage points for business in India and for India with the rest of the world.
India has seen rapidly growing business centres, but some centres are more important than others. Mumbai is India’s financial centre and has a spread of commercial and wealth activity. New Delhi is home to the central government, and most state owned enterprises. Gurgaon, where we now have approval for, is the prime business hub in the National Capital Region – and is home to some of the largest businesses. Nearly 50 per cent of the Fortune 500 companies, and subsidiaries of large multi-national corporations, I am informed, are housed there. It is witnessing rapid urbanisation and has the third highest per capita income in India.
Then you have Bangalore where of course ANZ has more than 6000 staff in its shared services operations and technology hub. This is a very strategic city, and has been on the global map for IT and the services sector and it gives us a gateway to the southern Indian cities.
And face to face contact is very important for business in India.
AC: Do you need more branches then?
SDG: India has clear regulations governing the approval of new branches, so physical expansion can take time. The three branches I would say give us plenty of opportunity. It gives us a good base to grow.
AC: How quickly is ANZ growing in India? We have seen a period of financial uncertainty, inflation issues, now a new government.
SDG: Well our business has gained significant momentum.
We have made great progress since we set up – across our target client segment assisting them across geographies and have developed our trade finance, cash management and financial markets businesses.
Our strategy is to focus on the India-Australasia trade and investment corridor. Given our expanding Asian network, this is a strong proposition to Indian companies operating and wishing to expand across the region; and multi-nationals with business interests into India.
More specifically, playing to our strengths, we leverage the regional connectivity and our industry specialisation in natural resources, agribusiness and infrastructure and strong financing capability. One of the things we have been able to do for our clients is connect them with investors, whether through leading loan syndication or through debt capital markets structures.
We are now the number one International Mandated Lead Arranger for Indian Offshore financings by number of transactions in 2013 completed by a foreign bank.
With our new branches, we are looking to both deepen the services we can offer existing clients and obviously also attract new clients given our broader reach.
The network capability, with Australia, New Zealand and the rest of Asia is really important.
We have made great progress since we set up – and enjoy strong relationships with India’s largest conglomerates and banks and other stakeholders in India.
AC: Can you give us some examples of how that business is developing?
SDG: We now bank our key relationships across multiple geographies with a slew of products. This includes supporting trade financing needs of customers in the Asia Pacific region, multi-nationals’ needs within India, supporting our natural resources clients to secure raw material supply and good quality assets, and fulfilling the capital needs of Indian clients in international markets.
Our experienced team on the ground working very closely with the ANZ team across the network is making a huge difference for our clients.
AC: And that huge political change we have just seen with the election of the Modi government and the end of UPA era?
SDG: Actually, this has been expected for quite some time. I think when you consider the recent past, there was financial uncertainty, high inflation, which the Reserve Bank of India has done a very good job in addressing and bringing market stability in the latter half of the last year .
The issue thus far at the government was a lack of leadership, a lack of good governance.
Now the new government has brought with it expectations of more certainty, of faster decision making. We are already hearing this from our clients, when we are out at meetings, there is now more of an air of confidence.
India, for many people, has been a country of long term promise. The fundamentals are very strong.
There is still so much restructuring, reform of the economy needed but the feeling is now there is governance. Foreign investors seem more confident, local industry too.
The new PM Modi has a strong track record as a ‘doer’, and this is reflected in the strong mandate he has now achieved.
In general, the expectations are that there will be an improvement in doing business in India and with India, more efficient government facilitation and “de-clogging of the system”, some easing on the foreign direct investment front. Revival of infrastructure, urban planning and other capital projects are other expectations.
Bigger issues such as a revamp of land acquisition and environmental clearances are more complex to tackle and are unlikely to be resolved in a hurry, although we expect the government to give strong impetus to their resolution.
Overall though, it will be a positive impact for growth.
AC: And how is the Indian economy travelling now?
SDG: We do believe there will be a gradual recovery. Of course, it’s not a magic wand. But the economy is in much better shape now than it was at this time last year.
If the monsoon doesn’t spring any negative surprises, India could very well be in a sweet spot in the second half of 2014 with growth prospects looking brighter.
ANZ expects a GDP growth of 5 per cent this year and between 6 to 6.5 per cent in the 2015-16 financial year.
While the outgoing government put the economy on the path of fiscal consolidation and the new government is likely to stay on the path and at the minimum ensure that the fiscal deficit for 2014-15 financial year doesn’t exceed last year’s 4.6 per cent of GDP. We would expect the government to target a deficit that’s somewhat lower than 4.6 per cent with rationalisation of spending, subsidies in particular, and divestments as key ingredients.
We see headline inflation softening back toward 8 per cent. But beyond 2014, inflation may very well end up being sticky-high around 8 per cent, above RBI’s objective of 6 per cent for end-2015, mainly because food inflation seems to be a structural issue. The new Government though is intent on tackling inflation by reducing structural blockages.
With regards the rupee, in the near-term ANZ strategists expect USD/INR to go to 57.5 before it gradually settles around 60 in 12 months’ time.
AC: Having now secured permission for the two new branches and given your macro-economic outlook and positive expectations of the new government, you’re obviously positive on India. Where are the major opportunities?
SDG: India is the world’s third largest economy on purchasing power parity terms and it remains one of the fastest growing economies in the world.
It has favourable long term fundamentals which will underpin GDP growth of 5-6.5 per cent after the recent slowdown.
There are favourable demographics: approximately two-thirds of the population are in the working age group.
There will be a growth in consumption. India’s massive urbanisation will underpin growth. Currently 52 per cent of China’s population is urban compared with 31 per cent in India.
With the 4th largest banking revenue pool in Asia and expected growth of approximately 16 per cent, India remains an attractive though well competed market for foreign banks. It has low banking penetration and a high savings rate which is expected to help the banking revenue pool grow at 16 per cent, and nearly 41 per cent of the population is unbanked.
And as far as Australia goes, there are significant trade and natural resource linkages with Australian-Asian economies combined with increasing funding requirements of Indian corporates and banks.
Despite the economic slowdown there have been significant FDI inflows with 20 per cent from Asia. India’s trade with Asia, Australia and New Zealand is growing. Robust bullion demand has made India the second biggest consumer in the world.
We think the growing demand supply gap in natural resources plays to ANZ strengths as does India’s need to secure its food supply.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.