"We've made wonderful progress in the last few years, the brand of Standard Chartered in India is very strong and I want to continue to build the service levels and build the business"

Standard Chartered is said to be the biggest corporate customer of British Airways, and one man-more than any other, perhaps-responsible for racking up the most frequent flyer miles is the bank's CEO of almost four years, Mervyn Davies. Since 2000, Davies, 53, has been to India an astonishing 38 times. Most recently, Davies, a sports fanatic (besides being a Tottenham Hotspur fan and a director on the club's board, he's the wicket keeper-captain of StanChart's cricket team), came to Delhi as part of British Prime Minister Tony Blair's trade delegation from the European Union. Despite a packed schedule at the two-day India-EU summit, Davies squeezed time out to speak with BT's R. Sridharan on the bank and its plans in India. Excerpts:

Does the Indian banking industry look less attractive-not in terms of growth opportunities, but in terms of consolidation-given that the RBI's banking roadmap almost rules out acquisitions until 2009?

It's disappointing because we have huge ambitions for our businesses in India. So there is no doubt that restrictions on ownership, restrictions on purchasing a bank... put a dampner on the whole thing. However, if you look at where we were a decade ago-even though we have been in India since 1858-and where we are today, the reality is that we are a significantly bigger bank. So, it does not change my attitude towards India as a CEO. We are long-term players, we are building a very large consumer and wholesale business, we want to expand in the whole of India and do things like sponsoring the micro-finance conference like we did this morning, where Finance Minister (P.) Chidambaram came. You know that type of initiative clarifies that we are a committed bank. I am disappointed, but it doesn't change the long-term investment plans of the bank. We grow organically.

If you look at the Indian market, there are local banks such as ICICI that have been far more aggressive than any of the foreign banks, be it Citi, HSBC or StanChart. So when you say organic growth, how exactly will it play out?

Well, we'll just carry on doing what we are doing today.

But at a faster pace?

No, no, no. Look at the profit growth we have experienced, look at the growth. Standard Chartered now has 79 branches, we have got a wealth of wholesale bank customers. We cover 31 cities, we've got, including Chennai, an operational hub and 12,000 staff, which is 10 per cent-plus as part of the group. So, strategically, we will continue to invest in India and we will continue to grow, and do it organically. Margins have been under pressure in India in the whole industry, but if you look at the volumes of Standard Chartered in India, they are up about 50 per cent. I am delighted with the progress that we are making and I do not fear anybody. We are after all the largest foreign bank, and we are concentrating on making sure that our service levels are right and that we are attracting the best people.

But in terms of gaining leadership in any product segments, have you set any targets for your India team?

No, we have financial targets. We have got about 2.5 million customers and I won't be happy until we've got closer to 10 million. I won't be happy until we are a leader in a range of product areas. But I think we have done very well in mortgages, we've done very well in cards. And you know one should not forget that these are relatively new businesses in India. So, no, we've made wonderful progress in the last few years in India, the brand of Standard Chartered in India is very strong and I want to continue to build the brand positioning, build the service levels and build the business.

Last year, you were reported saying that one could count on one hand the number of banks that were going to do well in China. What about India?

We are going to be one of the leaders. We are today a leader in India. The very fact that I pay such regular visits here, the very fact when I meet politicians and business people, I know them all, is a testimony to the fact that this is a bank that grew up here in India. So I know that we are already a leader here, and that in future we will continue to be a leader. So I don't worry. You know, competition is a good thing; there will always be competition in any business and there are some very good local banks here, and there are very good international banks. That's good. Competition is good.

"There will always be large players in our industry... what we will see is the emergence of a few global banks and a number of very large regional banks. And we are one of those"

If you look at 2004, it has been a phenomenal year for the banking industry. I believe banks made record profits, racking up 20 per cent on capital employed. But do you see this now coming under pressure because of things like higher oil prices, rising inflation and concerns over the US economy?

Not really. As our results showed in the first half of the year, we had an exceptionally strong performance. We grew profits by over 20 per cent, we grew our earnings per share by over 30. So, Standard Chartered continues to perform exceptionally well, forget about the rest. Our results obviously have been better than those of several banks in the world, and our share price reacted. That's against the background of being in the right place at the right time.

There is no doubt that higher oil price affects the confidence that one has in the future of the credit environment, the risk environment. So I think, there is no doubt that events like Katrina and other events that are leading to a higher oil price will undoubtedly, in the medium term, have an impact on the economic growth. No doubt, there are some clouds on the horizon in banking, and we outlined those when we had our results.

If you are an international bank, Standard Chartered is one, how do you strategise for growth? There are some markets such as India and China where you definitely need to be in. But are there other emerging markets, not in the Asian region, that you are focussing on?

We are very clear in our strategy. The focus of the bank is Asia, Africa and the Middle East. We want to be a leader in those market places. Now, we are obviously in a huge... we are in 56 countries, we may not be one of the biggest banks in the world, but in every one of our markets, we are a big player and we are a local player. At the end of the day, Asia, if you include India and China, has more than two-thirds of the world's population. So, we are in high-growth economies and that's exactly what we want to be focussing on.

I was reading the Banker's global 1,000 rankings that came out recently, and one of the things it reveals is that the big banks are getting bigger. So, there is this category of super banks that is able to leverage its size to grow in other emerging markets also like India...

Like who?

Citi, HSBC....

I think the job of Chief Executives is to create value for the shareholders, and not to grow big for big's sake. If you look at value creation in banking over the last few years, you will find that Standard Chartered is right up there amongst the top. And the job of the Chief Executive in business is to create value, not to say 'I am much bigger than what I used to be'. So, I think it depends on which model you want. I mean we are very big in our markets and clearly the shareholders like what we are doing and the customers like what we are doing because they continue to buy. Yes, there will always be large players in our industry, but there are thousands of banks around the world and I think what we are going to see is the emergence of a few global banks and a number of very large regional banks. And we are one of those.

But do you think restricting your focus to Asia, Middle East and Africa will work to your disadvantage down the line when the big global banks start competing in those markets?

But they are already competing. I mean, Citi and HSBC are two of the largest banks of the world and they are already competing in our markets.

Just a hypothetical scenario: if it came to a bloody war in banking, wouldn't the global banks, who have deeper pockets, have more staying power?

The customer doesn't look to who's got the deeper pocket. Customer wants service with a smile and wants products that he or she can buy, whether it is big corporations or individuals. We are in the service business. When you walk into a hotel, the fact that it might be part of a big group doesn't matter. The fact when you walk into a bank branch, it doesn't matter whether it is part of a big group. What the customer wants is service at a good price and in a friendly manner, and the products that he or she needs. That's what banking is about. So what you found is that some of the large banks have not produced value for the shareholders and if you don't produce value in the long term for shareholders, you won't survive. I think in our chosen strategies and products, we are very big and so local banks look at us and say, "Wow, these guys are so big. How are we going to compete with them?" Standard Chartered clearly, as the results demonstrate, is a) big enough to compete and b) doing exceptionally well. So, I think we've got enough capital, we've got enough people, and we are in the right markets.

Do you expect consolidation to accelerate in the global banking industry?

There has been consolidation going on for decades. What I think is much more important than consolidation is the application of technology and service to the industry. What is much more relevant now is that... when you look at the mobile telephone and the development of mobile telephony, when you look at the way consumers' buying behaviour is changing, when you look at the way in which information flows are changing, that's what is going to be the key in banking.

I think that things like mobile telephones, things like PDAs, etc., over the next few years, will become very big influences in banking, and I intend Standard Chartered to be at the forefront of the application of those technologies.

"It doesn't matter whether it's a back office or a front office, trading or whatever. India is going to play a critical role in the development of the global economy"

How much is the bank spending on customer-facing technology?

Oh, a huge amount. We are getting more and more innovative around the world. If you look at what we've done recently on the eSaver account in Singapore, if you look at what we just recently launched with Disney in Hong Kong, if you look at the m-Wallet and some other products that we launched here, and if you look at the things we've done in capital markets and cash management. I think the reason our results are so strong is because we've become a more innovative bank that is giving customers what they want.

Coming back to India, the country wants to create Mumbai as a financial hub. How do you rate Mumbai's chances of actually becoming one?

In banking, India is already a hub. I mean, we should not forget that in Chennai, we have our global operational hub and another one in KL (Kuala Lumpur). So it doesn't matter whether it is a back office or a front office, trading or whatever. India is going to play a critical role in the development of the global economy. It is no secret I am a huge bull on India. I am a big believer in its future. It is different to China but I am just an optimist. You know, there are going to be lots of international financial centres and India has a billion people, it's going to need more than one international financial centre. If you look at how many America has to service its 350 million people, and if you look at... no longer people are talking about competition between Hong Kong and Singapore, Hong Kong and Shanghai. The reality is, you are going to need a lot of financial centres to cope with the growth in GDP in India and in the rest of the world. So, I think India is well placed and I do believe liberalisation and opening up of the markets would obviously accelerate its positioning as a hub. I do believe that, because I think liberalisation brings three things: Acceleration of everything, it brings basically best practices in, and it brings competition. It is what we describe as the ABC of facts. So, you shouldn't forget that in our bank, India is already a huge hub.

Last question. Probably you don't have one, but if you wanted to set a goal for Standard Chartered in India by 2010, what would that be?

I don't tend to have those sort of numbers or goals by a year. What I would like is that during my time as Chief Executive of Standard Chartered, we've made great progress in India. It's a country that I truly love. It's a fantastic place. Now, I want to see us continue to invest heavily, I want to continue to see us developing talent (people), and I want to continue to see us acquiring new customers. So you know, as people are reading this article, I'd like them all to try Standard Chartered out as a bank and then enjoy the experience.