Companies & Sectors
HSBC’s interactions with top finance executives indicate tough times ahead

From its meeting with CEOs and CFOs of 13 financial companies recently, HSBC has found there's a consensus that liquidity will ease only after April 2011; Basel III, IFRS are key variables for 2013; micro-finance losses are tangible; there are no worries over bribery cases or the 2G scam

HSBC has gathered from its interaction with the heads of several financial companies that the situation for banks may not be too good over the next 4-5 months.

Here are some consensus observations that emerged from HSBC's meetings.

  • Loan sanctioning and disbursement from PSU banks could generally become slower as more checks and balances are put in place. 
  •  Overall loan growth seen at 18-20% this year and a little higher next year. 
  •  Margins flattish, slippages to be higher this year. 
  •  Bribery and telecom scam to have limited impact; micro-finance mess would have tangible impact but limited by small exposure.

    Here are key comments from the officials whom HSBC met.

    Axis Bank - Shishir Mankad, vice president, finance: Margins are likely to dip in the initial part of the up cycle. Exit margins at 3.5% in FY11. In FY12 margins would lose support of equity raised last year. No noticeable improvement in slippages as yet (Rs4.5 billion in Q1 and Q2), mainly SME related.

    Bank of India - BA Prabhakar, executive director: Stress on level of Q2 slippages is likely to continue for two more quarters, mainly on smaller loans, including agri. Government spending has been slow as it is probably trying to conserve cash for next year.

    CRISIL - Suman Choudhury, head of financial sector ratings: Individual sanctioning power may be curtailed, or reviewed, at PSU banks. Some slippages expected for the next 1-2 quarters, which is likely to add 40 basis points to the gross non-performing loans (NPL) ratios. About 20% slippage expected on restructured loans. Moratorium on about 60% of restructured loans is through; the about 40% remaining is likely to be done by Q1FY12.

    HDFC Bank - Paresh Sukthankar, executive director, and Pralay Mondal, country head for retail assets & credit cards: Core CASA likely to decline a few percentage points and 'fluff' CASA is likely to disappear. Corporate access to money market has come off the tightness.  Corporate capex has been mainly funded by cash surpluses and forex loans.

    ICICI Bank - Chanda Kochhar, managing director & chief executive officer; Rajiv Sabharwal, executive director; Puneet Nanda, executive director; Satyan Jambunathan, senior vice president & head of finance: MFI exposure is 1% of loan book.

    IDBI Bank - P Sitaram, chief financial officer: Term deposit growth is likely to be challenging as incremental money goes into savings and other instruments. CASA target at 18% in FY11 and 25% by FY13. At least 1.75% net interest margin (NIM) expected for FY11, 2.2% in FY12 and 2.5% in FY13-return on assets (ROA) target at 1.2%. Would like to bring down bulk deposits from 65% to 50% of term deposits.

    IndusInd Bank - Romesh Sobti, managing director and chief executive officer; Paul Abraham chief operating officer; KS Sridhar, chief risk officer: Likely to originate home loans for HDFC with all-in fees of 1.5%. Vehicle finance gross yields at 16% would help achieve blended yields of 12%, which are highest in the industry. Bulk deposits now down to 50% of term deposits. Target is 35% CASA.

    State Bank of India - SS Ranjan, deputy managing director & chief financial officer: Deposit growth to be 3% lower than loan growth. FY12 loan growth seen at 22% and FY11 at 18-19%. About 500-600 branch expansion envisaged each year. Fee growth of 20-30% over next 3-4 years. Working capital lending improving as inventory unwinding comes off. By Q2FY12, Rs400 billion of 1,000-day, high-cost deposits would have re-priced and equity issuance in March 2011 is likely to help move margins to 3.5% levels. Cost/income ratio target at 38-40% over two years versus 45% currently as income increases quicker.
    HDFC Ltd - Keki Mistry, vice chairman and chief executive officer: 20-25% growth comfortable in the medium term, led by urban population proportion increasing from 28% to 40%.

    IDFC - LK Narayan, executive director and group chief financial officer; Bimal Giri, senior director: About 19% of assets is mainly 2G exposure (tower business). Target is to treble balance sheet in 3-4 years from Rs330 billion currently.

    HDFC Standard Life - Vibha Padalkar, chief financial officer: Persistency has improved from 65% to 80%. Product mix incrementally is 10% traditional, 90% ULIPs.

    ICICI Pru Life - Puneet Nanda, executive director, Satyan Jambunathan, senior vice president and head of finance: NBAP margins have dropped, given the expenses and persistency. (NBPA stands for new business achieved profit.) Hence, cut in expenses is required to maintain margins. New products are far more favourable for customers, hence persistency likely to increase despite drop in commission rates. To put greater focus on protection products.

    Reliance Life - Sam Ghosh, chief executive officer at Reliance Capital: Implementation of the direct tax code may slow down sales somewhat, as savvier large-ticket holders may opt out, but smaller holders will not. An estimated $1 billion will be required this year and $2.5 billion in the next year and should be self-sufficient after that.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife.) 


Industrial output rises 10.8% in October

New Delhi: Back in the double-digit growth after two months, industrial output in October rose by 10.8% on back of healthy performance of sectors such as automobile, electronic goods and power, reports PTI.

Industrial production, which crossed 15% in July, dipped to 6.91% in August and further to 4.4% in September.

It again entered the double-digit growth figure of 10.8% in October, up from 10.1% in the same month a year ago.

“The present growth rate of IIP (Index of Industrial Production) shows that revival of economic growth that started a year back is continuing,” said Sriprakash Jaiswal, minister for statistics and programme implementation.

The government attributed the rise in IIP to improved performance of the sectors such as ship building, power equipment and generators.

Besides, Mr Jaiswal said high growth in production of consumer durable goods was mainly due to healthy growth in the production of passenger cars, motorcycles, scooters and mopeds, alarm time pieces and televisions.

The IIP data reveals that manufacturing sector during October grew by 11.3% and electricity generation by 8.8% from 10.8% and 4% respectively in the corresponding month last year.

The growth rate of the mining sector, however, decelerated to 6.5% during the month from 9.1% on October 2009.

The capital goods industry, according to data, recorded a growth of 22% in October, up from 10.9% during the same month a year ago.

During April-October, industrial output showed an increase of 10.3%, up from 6.9% during the corresponding period last year.


HSBC Advance: No distinctiveness, no gravitas

The HSBC Advance campaign for the so-called relationship banking tool, moves too fast to capture the joys of life’s progress

HSBC has launched 'HSBC Advance', the so-called relationship banking tool which targets the urban, young, loaded consumers. 'Who could you be tomorrow?' is the punch line. It apparently tries to appeal to the desperation of the new young to surge forward in life. And HSBC Advance promises to be the bank that looks after that booming dream of youngsters.

I watched two commercials on air that promote this idea. In one, a young man transforms from being single, to getting married, to becoming a daddy. And this megamorphosis is rendered in swift transitions (to bring out the 'can't wait' spirit of today's gen). The voice over reassures: "When your whole world changes, HSBC Advance can help your financial plans change too." In another one, the same thing happens. Here, a young suit goes from a lunch break to a career break. And of course, the promise that HSBC is right behind you to support your various breaks.

I know this is a part of HSBC's global campaign, but I have some serious issues with this work. On the first level, the strategic thought behind the communication: Relationship banking is the new buzz not just in the banking sector but in most financial services ads, including insurance and broking. It's such an abused concept, it now carries very little interest and credibility. In other words, it is not really a sound strategy to adopt any more. Two, even if the HSBC guys couldn't think of another route, the creative had to be unique and earth-shattering if the concept had to work. Sadly, the campaign falls flat in this regard as well. While the rapid life transition denotes speed, the whole story moves so fast, there's zero space left to capture the joys and emotions associated with life's progress. This treatment looks more like a lab experiment rather than a life situation. In short, the gimmicky stuff totally kills whatever possibility there was of making the ad breathe and strike a chord.

Finally, here's a warning for all financial services companies, and particularly for HSBC, who, I unfortunately bank with. Please get your product sorted out before you make 'relationship' promises to consumers. That's the fundamental principle of all marketing. Nothing kills a bad product faster than advertising. Are your staffers trained and skilled to deal with your fancy promises? Are their objectives in sync with the communication objectives of your organisation? I have always had the worst experiences with HSBC across their branches and cities. The staff is often demotivated, disorganised, disinterested and disdainful.

I don't know who I can be tomorrow. But right now, I am furious.



Nagesh KiniFCA

6 years ago

In addition to establishing relationships and targeting already heavily banked urban HNI kids, HSBC and foreign banks ought to go to Bharat that is already a part and parcel of "emerging" India. There's hell of a lot of money with the rural rich and at the other end of the spectrum there is rampant poverty among the farmers and artisans. As a part of their own CSR they can augment their Priority Sector lending to the BPL where they can join hand with the already existing schemes like NREGA, Rajeev Awas Yojana and the like. They should shed their only urban image.
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