Citibank's Sharma and ABN AMRO Bank's Sobti: Focussing to expand client base

When the 153-year-old Standard Chartered Bank recently decided it was time to foray into rural India, it pounced on a 15-member team of Barclays Bank in South Africa. For Stanchart, which has no agriculture-related operations globally, the acquisition was important as the Barclays team had done agriculture finance all along and had intimate knowledge of the agriculture value chain. The 15-member team is now busy writing the rural India strategy for the bank. Stanchart is expected to make a small beginning in four to six months, and ramp it up in 2007.

Meantime, in Citigroup's swank suburban headquarters, the theme is slightly different: It's wealth management, and the group is busy sewing together its India blueprint, right from the retail broking level. Elsewhere, at ABN AMRO, commodity trading and broking is the latest gap in the portfolio that is being plugged. HSBC is preparing to lend to the small & medium enteprises sector as well as flag off private banking. And Deutsche Bank plans to roll out the entire gamut of retail products over the next 2-3 years.

Five years ago, a foreign bank going rural would be unthinkable. Today, there are over two dozen foreign banks jostling for space in businesses traditonally regarded as 'untouchables'. As growth in developed economies nears saturation levels, it's emerging markets like China, Eastern Europe, Latin America and India that are the new growth engines. "Our strategy is to go down the pyramid and develop a much larger client base. In fact, as a bank today we are more local than foreign," says Sanjay Nayar, CEO, Citibank.

He's not the only one thinking mass. Standard Chartered's non-banking finance company (NBFC), which started operations in August 2005, has already set up 21 branches; the plan is to go up to 60 in the next 4-5 months. Amazingly the average ticket size of Stanchart's personal loans is just Rs 30,000-35,000, and it rarely goes above Rs 50,000. Awaiting an rbi licence for an NBFC is HSBC India, which is also eyeing the Rs 50,000-1 lakh consumer loan bracket. "Our top priority is financial inclusion and serving under-banked areas," says Naina Lal Kidwai, Country Head and CEO, HSBC India. On ABN AMRO's radar are smaller cities like Panipat, Nasik, Udaipur and Salem. Adds Neeraj Swaroop, CEO (India), Standard Chartered Bank: "The game is about who owns the customer."

Whilst on the one hand the game is about introducing more people to organised banking, it's also about ensuring that you don't lose a customer to a competitor because you don't provide a particular service. That's why almost every foreign bank is attempting to plug the gaps that exist in its portfolio. What's more, if banks do get into retail broking, they'd enjoy an edge over traditional broking firms. For, as Romesh Sobti, Country Executive (India), ABN AMRO Bank NA, points out: "People trust their bank the most. And if a multinational bank with a strong brand behind it comes calling, this factor comes more into play."

"We have superior research quality, tested asset allocation processes and risk management tools," claims Deepak Sharma, CEO (Global Wealth Management) at Citibank NA who is spearheading the wealth mananagement forays of Citigroup including retail broking. Clearly retail investors are a huge opportunity for the foreign banks, many of them are using their asset management companies (ANCs) as a vehicle for such forays. Traditionally a debt house, Standard Chartered AMC is now aggressively looking at equity business. ABN AMRO AMC is launching portfolio management services (PMS) via the mutual fund route. Deutsche Bank has brought in its most popular DWS brand for its asset management business in India. And Citibank is also eyeing commodities trading.

On the corporate side, the foreign banks which traditionally focussed on top 100 or 200 corporates are now focussing on the middle market. "Today, the needs of SMEs which are exposed to global markets are much more than working capital or trade financing," says Bala Swaminathan, co-head (wholesale banking ) at Standard Chartered Bank. "Corporate clients today need intellectual capital and risk management solutions and advisory products," adds Gunit Chadha, Managing Director & CEO, Deutsche Bank India. Citibank today has an SME portfolio of over a billion dollars.

The race is not only for good assets; the foreign banks are equally gung ho about tapping the market for bad assets. "We are open to look at stressed retail portfolios as and when this category matures," discloses Chadha of Deutsche Bank. "We have experience in (retail) collections and we are looking at retail stressed assets. In fact, we do it in Korea, Japan and other countries," adds Citibank's Nayar. abn amro is looking at a possibility of taking distressed assets onto its books, while Standard Chartered has signed a memorandum of understanding for an asset recovery jv with four banks (j&k, obc, ubi and Central Bank) and also created an inhouse asset recovery division within the bank.

"Real estate will be a very large opportunity going forward. We are looking at the entire spectrum-lending, securitisation, equity investment and capital market. There are also opportunities in infrastructure financing, especially in the areas of ports, roads, power and SEZs," says Nayar. Citi and the rest of the foreign bank pack have their hands full for the next few years.

-Anand Adhikari

Sahara's Property Play
Housing is turning out to be Subrata Roy's biggest gambit yet.

These may not be the best of times for the Sahara India Pariwar, but the frenetic activity at one of the companies, Sahara Infrastructure & Housing, belies the theory that the conglomerate is fast sinking. As of April, the company claims to have acquired all of 20,000 acres of land. And it isn't stopping at that. Sunder Lal, Head of Sahara Infrastructure & Housing (who reports to Chairman Subrata Roy), says the target is 60,000 acres across 217 towns, in which the company will build its townships, under the banner of Sahara City Homes. The size of the townships will range between 100 and 360 acres. Sahara claims to have roped in reputed architects like Hafeez Contractor (who has designed the townships), as well as Bechtel, L&T and Otis for technical support.

Lal points out that the value of the land acquired so far (excluding the Amby Valley project in western India) would be roughly Rs 20,000 crore at today's prices, and the cost of acquisition would be much lower than half that amount-he's not giving the exact figure. What he's willing to say is that the total cost for acquiring 60,000 acres won't be more than Rs 18,000-20,000 crore. The math is doubtless intriguing, but even more is the source of all that money.

-Brian Carvalho

Big Appetite
Navis likes food, but won't live by it alone.

Navis' Bloy (left) & Nirula's Kuckreja : A palatable order

With $500 million (Rs 2,350 crore) under management, Navis is not by any stretch one of Asia's largest private equity (PE) funds. Yet, what sets the Malaysia-based PE firm apart from the rest in the region is its appetite for the food retailing business. In Asia it has invested in KFC in Hong Kong, Dunkin Donuts in Thailand and Dome Coffee, an Australasian restaurant chain. In mid-July, the mid-sized PE firm bought into Wendy's ice cream sundaes business in Australia. Such a hunger for food companies is evident in India too. Navis along with Samir Kuckreja recently made its third investment in the country by buying out north-India based fast food chain Nirula's for Rs 90 crore. Navis had earlier bought 74 per cent stake in two companies owned by Mumbai-based entrepreneur, Sanjay Narang-Sky Gourmet Catering, and Mars Hotels & Restaurants.

Last fortnight Nicholas R.H. Bloy, Director, Navis, visited Delhi to blueprint Nirula's future course with new Managing Director and part-owner Samir Kuckreja, nephew of erstwhile owner Lalit Nirula. Kuckreja owns under 10 per cent of Nirula's while Navis holds the rest. "Over the next three years Rs 100-150 crore will be spent on revitalising the chain," says Kuckreja, who has been common to Navis' investments in India. Prior to returning to Nirula's, Kuckreja headed Mars Hotels.

Navis' current average internal rate of return is 3.5-4.5 times the original equity cost. Bloy says Navis can pull this off because the partners themselves roll up their sleeves like typical entrepreneurs. "We are small in Asia, but we make more money than others do," quips Bloy.

For Navis, food is one of the most "empirically analysable business." Simply put, not only is it possible for Navis to link the profitability of an outlet to its location and its socio-economics, it is also possible for the firm to assess future profitability. "The range of uncertainty in any retail concept is much narrower than in say technology."

Then, Navis is not foraging only for food in India. Bloy is ready to invest up to $300 million (Rs 1,410 crore) over the next five years in India. "Any business related to consumer spending or even the light industrial sectors would be interesting." Navis is in talks with a packaging company and another that supplies storage tanks and pipelines, and expects to close at least one deal by 2006-end.

Exit options are clearly in sight. Navis likes to be present in segments where there is no dearth of multinational companies as buyers. A case in point is Drypers Malaysia. Navis bought the baby diaper company for $10 million, stayed with it for three years and then sold it to a Swedish multinational for $94 million. In the interim, Drypers rose from #3 in the market to top dog in South-East Asia in market share, beating Pampers and Huggies. Now which are the MNCs watching Nirula's and Mars?

-Shalini S. Dagar