On March 3, U.K.-based Standard Chartered Bank (SCB) announced that profit from its Indian operations had surpassed US$1 billion for the first time. Flush with this success, the bank is preparing to raise between US$750 million and US$1 billion through Indian Depository Receipts (IDRs) — instruments similar to Global Depository Receipts that allow foreign companies to raise capital in India. SCB’s listing will be India’s first-ever IDR issue.
SCB came about in 1969 through the merger of two banks — Standard Bank of British South Africa and Chartered Bank of India, Australia and China. The latter traces its roots to 1853, when founder James Wilson was granted a Royal Charter by Queen Victoria. Today, it has operations around the world, with 90% of its operating income and profit coming from Asia, Africa and the Middle East. On January 1, Jaspal Bindra, CEO of SCB’s Asian operations, was given additional duties as group executive director, leading the Asian charge into the board of the London-headquartered bank. It’s one more step, he says, in reaffirming the bank’s Asian soul. The next: A listing in India. Bindra recently spoke to India Knowledge at Wharton about a range of topics.
An edited transcript of the conversation follows.
India Knowledge at Wharton: Is your appointment to Standard Chartered’s board an indication of a power shift toward Asia — not just in the bank, but in the global environment as well?
Jaspal Bindra: I believe that my elevation to Standard Chartered’s board is recognition of the significance of our Asian operations. Our Asia business, as a proportion of the total, is roughly two-thirds. Whether you look at it by balance sheet, profitability or number of people, Asia accounts for about 60% to 70%. Out of 11, [there] are two Asians on the board, which is still a bit lopsided. But it is a difference from about two decades ago, when a lot of our international cadre officers were non-Asians. If you look at the pipeline, the board is going to get more diverse, which is a reflection of the power shift toward Asia in general.
India Knowledge at Wharton: You are planning a listing in India through Indian Depository Receipts. How big will this issue be, and when are you planning it? How much of the bank’s equity will it represent?
Bindra: We are very interested in floating an IDR issue, which will be India’s first, and we are actively pursuing this. We haven’t decided on the exact time and size, though we hope to do it in the second quarter of this year, subject to market conditions.
India Knowledge at Wharton: What is the objective of the issue? Why did you opt for an IDR as opposed to other instruments?
Bindra: We aren’t really looking at the IDR for capital-raising reasons. If it was just for capital, we could have raised it from anywhere. This is more of a strategic step given India’s growing importance in the Standard Chartered network, as we believe that listing in India will go a long way [toward] increasing our visibility and profile in the market. We have been working very closely with the Indian regulators for the last 18 months to make this happen, and their support has been commendable. India is the second-largest market now for Standard Chartered, and it is very quickly catching up with Hong Kong. Hence, we believe now is the right time to list here.
Second, we believe we will be among the first in what will become a trend. We expect to see quite a few companies with an interest in India to list in the local market. We’ve been trendsetters on several other counts. We’ve [held] our global PLC board meeting here in India since the 1980s. Now, it is fashionable for others to do [the same]. When we set up our global processing house in India in 2000, we were the first foreign bank to do so. Now everybody else is clamoring to do the same. So, we believe listing is going to be something that will happen for most companies with longer-term interests and scale of operations here.
Moreover, we also want to raise capital. I believe that India, in times to come, will become a very big source of capital for international issuers. It is one of the aspiring financial centers of the world. With a view on the longer term, we want to have the advantage of being the first mover in an emerging international financial center.
India Knowledge at Wharton: This is the first IDR in Indian history. Do you see problems in explaining the concept to investors or selling it?
Bindra: There will be challenges, because this will be the first IDR to hit the market. Clearly, there will be questions in investors’ minds about the structure of the instrument, how one trades in it, what kind of returns can be made on the instrument, and what are the risks involved given that our shares are simultaneously trading in London and Hong Kong. Moreover, investors will also want to understand more about our business. Steps are being taken to give adequate information to investors through various channels, including the media…. We have also had tremendous support from the authorities and we expect this will continue as we bring the instrument to the market.
India Knowledge at Wharton: Many foreign companies have not wanted to list in India. Some have even delisted. Why are you going against the tide?
Bindra: As I said earlier, I believe India is going to emerge as a key financial center with a deep and liquid market attracting issuers and investors from all over the world. Any company with interests in expanding in emerging markets will have an eye on the Indian market as a source for fund-raising. Once a few IDRs have been successfully floated and traded, one can expect international fund-raising from India to become commonplace.
India Knowledge at Wharton: You see an era of outbound M&A ahead. But for Indian companies to go on a successful takeover trail, they need the currency of acquisitions, principally equity. Most Indian promoters are, however, unwilling to dilute their holdings. How do you see takeovers happening in this environment?
Bindra: By and large, most Indian promoters doing transactions restrict their outbound ambitions to companies that they can finance with a mix of their internal resources and leverage. However, it is not that Indian promoters are always unwilling to dilute. For example, both Hindalco’s acquisition of Novelis and Tata Steel’s acquisition of Corus did indeed involve raising equity, albeit as a second step of financing — that is, equity raised for taking out a bridge facility. In fact, several outbound acquisitions by Indian companies involved financing through convertible bonds, which can — and did — convert to equity.
Logically speaking, outbound M&A is here to stay and grow. India has been a net importer of capital for a long time. That must change, especially as Indian companies have scale and competitive strength to compete in international markets.
India Knowledge at Wharton: You say that two of the greenfield areas in India are education and the marriage market. You see the latter as a US$20 billion business opportunity. But, globally, are there any large companies in these areas? What sort of entities do you expect will spring up and succeed?
Bindra: Education is an important sunrise sector in India, and we could see a lot of inbound M&A activity in [it]. The majority of Indians are young, and it is in the national interest to have a literate population in place. Today, every individual, whatever the means, wants his or her kids to be educated. It is a mega-aspiration. And with rising wealth, it is possible to back the aspiration with resources. The only gap is availability of the facility. The demand-supply gap is so obvious that every business house wants to [get into education]. We hope policy makers facilitate this. The big growth is going to come in places like hotel management [training], vocational courses, design institutes, fashion institutes ….
Another industry with strong potential is the marriage market, which is one of the biggest markets we will have. As a rough estimate, there are about 10 million marriages in India every year — a number that is going to grow as the young population grows. If you take an average spend of US$2,000 [for a wedding], which is on the lower side, [marriage] is a US$20 billion-a-year industry. If you had any other economic activity of US$20 billion, that would be fantastic…. [We] feel very bullish on India on so many counts.
India Knowledge at Wharton: How has Standard Chartered fared during the global financial crisis? Has it escaped damage because it is essentially a conservative bank?
Bindra: To the extent that we can speak as of today, we have come out well as an organization. We say “well” and not “fantastic” or “excellent” as it is such an uncertain world, and you have to be cautious about what might happen in the future. But [based] on a day-to-day analysis, when we compare where we were before the 2008 crisis with where we are today, we can say we are far stronger now. We are one of few institutions that can say that.
We had record performances in 2008 and the first half of 2009. To have record performances at a time that has seen the worst crisis in our living memory is something. But I don’t think we are out of the woods. More recently, we have seen [financial problems in] Greece and Dubai. So I don’t think the ride ahead is completely smooth. There will be bumps along the way. But we feel quite certain of our business model, our strategy for emerging markets and our credit portfolio, which looks good. We’ve stuck to what we know and what we do well. Most of our business is pretty boring, but in exciting markets. People who have suffered are those who did exciting business in boring markets, such as the U.S.
[As long as] the fundamentals don’t balance out — that is, the East saving too much and West still highly leveraged — there will be concerns over currency, volatility [and] prices; [there will be] concerns over what happens if someone, say, moves from U.S. Treasuries to gold. We can’t be sure another Dubai story will not surface.
India Knowledge at Wharton: The bank has some sort of a presence in all continents. But this is limited. Doesn’t the future belong to banks with a global footprint?
Bindra: We have chosen to focus on a few key markets, and that strategy has paid off very well. We will stay with it.
India Knowledge at Wharton: What are the lessons the bank and you yourself have drawn from the financial crisis?
Bindra: A key takeaway from the crisis for the financial sector as a whole is the importance of adhering to the basics of good banking. There cannot be enough emphasis on exercising prudence and adhering to robust risk management practices. There is a need for strengthening customer relationships to better understand the customer and his or her risk profile, [and] to sell the right kind of products to the customer. The business must be built along sustainable lines.
India Knowledge at Wharton: Where do you see Standard Chartered going in the future?
Bindra: Standard Chartered is not driven by size, and in that way we are different from other institutions. We want to be the best at what we do, which is a high aspiration. We do want to continue to grow market share, build a market presence and go from one record performance to another. That is there, but it is not with the aim of being the largest distributor or even among the top 10 in India or China. But we have no difficulty in living with the situation. We are not going to work toward buying up stuff just to get the distribution, etc., which doesn’t make sense.
On the other hand, we can have a leading edge in product innovation. There are areas of huge strength, learning, experience of other markets, etc. We can partner with governments or regulators in policy formation, as we have done in Nepal or Afghanistan, where we framed the entire Banking Act. It is such achievements that we are very proud of.