SEBI's clarification on IDR conversion will help bring right

Standard Chartered Bank is the first and the only entity as of now to get listed in India through the Indian Depository Receipt. The IDRs may have lost a bit of their sheen after SEBI's clarification on their conversion into shares. However, Mr Neeraj Swaroop, CEO, India Region, thinks the regulation will help bring in the right kind of investors. In an interview to Business Line, he said some investors were unhappy, after the SEBI clarification (disallowing conversion of IDRs except under conditions) as they could not take advantage of the positions they took.

 

Do you think you came out with the IDR issue before the market was ready?
We reflected on this and we came to the conclusion that it was the right decision to go ahead with the IDR. Our objective of doing the IDR a year ago was not to raise capital alone. Our objective was to demonstrate our strong roots and commitments in India. And we felt that being listed here was another way of demonstrating that. That's the reason we went for it and that reason holds. The second objective was to aid the development of the Indian capital market. The IDR was an instrument which has not happened before. Whether the Indian market was ready or not ready for an instrument like the IDR, a beginning had to be made. We are happy we pioneered it. However, as pioneers we had to face some challenges. There are issues on capital gains tax, participation by insurance companies, and clarification by SEBI on fungibility. There are things on which there is no clarity till somebody does it. That is evolution of policy. We are happy we did it, even as we reflect back post the issue. It was conscious and the objective was justified.

 

There appears to be a feeling among investors that they have been let down. Do you agree to that?
The current SEBI clarification has obviously disappointed some people. It is a regulatory issue. As an issuer we are happy that the ambiguity has gone away. Because it was not clear people took different positions and different interpretations. And to the extent that their positions were inconsistent with the clarifications which came later, they (investors) were disappointed. But now, there is a realignment of investors that is happening. I don't think it is necessarily bad or good. But the good part is that it is consistent. SEBI would not have put out a clarification without wanting to protect the interest of investors and the issuer. So we welcome the clarification. Everybody can't be a winner. Somebody who would have taken the position would have been disappointed. Hopefully, going forward the investors who are keen to invest in IDR as an instrument by itself and participate in the pool of IDRs and grow the market from here will participate. We are optimistic that that will bring in the right investor segment for the IDRs. There has to be enough liquidity in the market, which means we need as many domestic issuers to participate. And insurance companies are good long-term investors. IDR is meant to be an Indian security. It is traded in rupee. Regulators haven't been able to clarify if insurance companies can invest in IDR because the underlying is a foreign share. We are working with both SEBI and IRDA. We have been in discussion since the issuance happened. Insurance companies, when allowed to participate, will bring in liquidity for the instrument. We are hopeful that the issue will be clarified.

 

What is your take on the RBI's discussion paper on foreign banks in India?
The discussion paper was fairly clear. The fact that the RBI has taken this step is a positive step for foreign banks. The RBI is willing to engage in defining a road map, an opportunity for foreign banks to participate in a wider manner, is itself a positive step. Within the specifics of the discussion paper broadly the idea is to allow foreign banks to subsidiarise. They have to adhere to some of the guidelines that local banks have to adhere. There are some pros and cons. Each foreign bank will have to evaluate its business strategy, business model, once the final guidelines come out. The big issue is the one time stamp duty and the capital gains tax. We have represented to RBI. Let's see what the final guidelines would be. There will not be any change in operations (once the branch becomes a subsidiary). Just a change of form. So the government will have to make the change tax neutral. If that is made neutral, then at least it is viable on a technical basis. And then each bank can decide. We are waiting for the final guidelines to be out. The way RBI has worded it; it has left a lot of issues open to debate.

 

What is your plan ahead for the bank? How do you see the bank growing?
The bank has had an outstanding 5-6 years. We have grown from a smaller mid-sized bank to a larger mid-sized bank. We have done well in the areas we have participated in. Our focus in the last five six years has been the globalising Indian corporate. We lend to almost 2,000 Indian corporates. Similarly, on the consumer side we do bank with the more affluent segment. But we provide full range and international level service to all our clients. As we look ahead we believe we have reached a stage where we can grow and become more significant in the Indian industry. India is a core strategic market. We believe we got all the right ingredients to become a more significant player in the Indian market. Our strategy is that we will continue to do what we do well. We see additional opportunities in equities, private banking, project finance, infrastructure and renewable energy.

 

There is a perception that foreign banks in India focus more on M&A advisory activities and not on core banking like lending? Your view?
I strongly dispute that remark. In our case M&A advisory as one piece would not be more than 10-20 per cent of our income. So 80 per cent plus is non-M&A. Our construct is that – 25 to 30 per cent business comes from consumer banking. That is core banking. Of the 70 per cent of that is wholesale banking, about 40 per cent is from transaction banking-trade finance, cash management. Another 25-30 per cent is to do with foreign exchange which is again core banking activity. We provide access to Indian corporates to debt and capital markets internationally — banks are supposed to do that I can't find anything that we do that is not core banking. Compared with Indian banks, international banks like us do play a role in accessing global markets for fund flows to Indian corporates. That is a role we take pride in, it helps the economy because the fact is that Indian banks are still growing to become international banks. - www.thehindubusinessline.com