HSBC Holdings Plc, Europe’s largest bank by market value, said rival lenders poaching its bankers in India is pushing up wage costs that were already exacerbated by the nation’s high inflation.
The competition is acute in investment banking where “there’s only a limited pool of talent,” Stuart Davis, HSBC’s chief executive officer for India, said in an interview in Mumbai yesterday. “Some of our staff are being picked off by some of the domestic banks. Three years ago you would not have seen that.”
HSBC India’s retail business is “virtually break-even” after more than five years of losses, said Davis, 55, who took charge of the unit in April 2009. The London-based bank is trying to add market share in investment and commercial banking as foreign and domestic rivals including Barclays Plc and Religare Enterprises Ltd. build up their businesses.
Profit before tax in India may rise to $1 billion by 2013, Davis said. India is HSBC’s third-largest contributor to earnings in Asia Pacific, after Hong Kong and China, and generated $451 million in profit before tax in the first half of this year, statements show.
HSBC CEO Stuart Gulliver is focusing on emerging markets, where he plans to expand hiring even as he cuts 30,000 jobs worldwide by the end of 2013. HSBC has already trimmed 5,000 jobs and may recruit 3,000 to 4,000 people a year in emerging markets, Gulliver said Aug. 2.
May Consider Listing
The bank’s subsidiary in India may consider a listing in 10 years in an economy averaging 8 percent growth and a banking system that’s expanding at more than twice that pace.
“When we become a wholly owned subsidiary in India, we at some time would want to list” in the country, Davis said. “We have no intentions at the present time, but when one looks out 10 or 20 years, that’s perhaps a possibility.”
The bank is now redeploying some workers in India to avoid eliminating jobs, Rajesh Joshi, a Mumbai-based spokesman for HSBC, said on July 14. It has about 6,000 employees in the country, Davis said yesterday.
“We are reviewing the way we conduct business, particularly the bureaucracy within our operations, which is slowing down decision making,” Davis said, when asked whether there would be any job losses at the bank’s Indian unit. He declined to provide further information.
Indian financial institutions are becoming as competitive as HSBC, Standard Chartered Plc and Citigroup Inc. in what they pay to attract bankers, said R. Suresh, managing director of the Indian unit of Stanton Chase International, an executive search firm.
“There is a 15 percent to 20 percent increase in wages in normal circumstances,” he said. “However, a good performer can easily expect a 25 percent to 30 percent hike.”
Jefferies Group Inc., the U.S. investment bank that’s expanding its advisory and trading units in India, hired five people from Credit Suisse Group AG to build its capital markets team in the country, two people with knowledge of the matter said on March 15. Religare said in May it hired Gautam Trivedi from Goldman Sachs Group Inc. to head institutional equities in the country.
Haresh Shivdasani, head of Indian equities at HSBC, resigned on April 25 after less than two years in the role.
Low Market Share
HSBC, which started operations in India in 1853, believes the benefits of converting its local unit into a wholly owned subsidiary “outweigh the negatives,” Davis said.
The Reserve Bank of India is considering making it mandatory for overseas banks to set up local subsidiaries if their branches’ assets met 0.25 percent of total banking assets in the previous financial year. Foreign lenders would also face tighter norms on expansion when their combined capital and reserves exceed 25 percent of total capital in the banking system, the central bank proposed in a Jan. 21 paper.
“Realistically, I can’t see foreign banks getting above 10 percent market share in India,” Davis said.
Foreign banks account for about 7 percent of the nation’s total banking assets, Reserve Bank Governor Duvvuri Subbarao said in December.