There’s optimism in the country and it’s seeping through the system: HSBC India CEO Hitendra Dave

HSBC India’s Chief Executive Officer HITENDRA DAVE says he is bullish on India despite a host of problems across the global economy. In an interview to HITESH VYAS and GEORGE MATHEW, Dave said it is very difficult for any international investor to ignore India’s growth story. He also believes that FY2023-24 is going to be one of the best years for Indian banks. Excerpts:

What is your assessment of the Indian economy?

If you look at the overall combination of external and internal factors, India has found itself in a beautiful spot right now. The digital public infrastructure which we have not only helps in terms of ease but also opens up the possibilities for a macro economy. There is a reason why loans to MSMEs and personal segments are growing. You now get so much data with consent of a borrower, that you are able to judge their creditworthiness more accurately. Credit plays a role in economic activity.

There have been significant investments in physical infrastructure such as highways, airports and metro lines in various cities. All of these crowd in material, labour and also second-order demands. So, we have internal factors such as demographic dividend, digital public infrastructure, physical infrastructure and credit and, there are external factors like China Plus One, supply chain shifts and geopolitics. I think we are in a sweet spot. There is optimism in the country and it is seeping through the system. I am very optimistic about India… I don’t think I have been this bullish ever.

There is a fear of recession globally because of high interest rates and inflation. Do you think it will impact us?

We have heard the word recession for about close to a year. The employment numbers are high in America and people are still consuming in reasonable quantities. The global economy has experienced the Ukraine war, high oil prices, rise in energy prices in Europe, and yet the growth numbers are positive. There is something in the broader economy. I don’t think the resilience or the shock-absorbing cushion is getting captured in widespread narratives. I think the world (growth) will slow down due to an increase in rates but I don’t think we are at the cusp of a recession which is felt by people.

Has the policy rate peaked?

I think so. The recent inflation print (April CPI at 4.7 per cent) indicates that the rate has peaked. I think the base case has to be that we are on a long pause. I don’t think there are talks of rate cuts in yield curves either in the West or in India.

When do you expect rate cuts to begin?

I think there would be no rate cut both in the West and in India for at least a year. Central banks had a very scary experience when inflation was rising. So, they have to wait to reassure themselves that the genie has been bottled back and that too not just for three months or so.

Are you noticing stress in any particular sector in India?

So, customers who were exporting to Africa or certain parts of Asia, did tell us that there was a slowdown. They don’t know when the demand will pick up. It (stress in some sectors) is coming from (fall in) external demand more in Asia and Africa but not in the US or Europe.

Do you expect retail loans to continue to drive credit growth?

I think FY2023-24 will be one of the best years for the banking industry. The momentum will continue with clean balance sheets, good risk parameters and data checks. I think we are still in the early stage of expanding our consumer credit. India is very under-penetrated from a credit perspective. The good thing about retail risk is barring an unemployment shock, you will not get large-scale issues. I think India is at a cusp of a long period of growth, significantly contributed by bank credit to households and small businesses. I would expect that to continue.

How do you see corporate credit growth?

The demand for credit from large corporates is slowing down simply because they have used all the cash flows to reduce their indebtedness in the last 4-5 years.

What sense do you get when you meet foreign investors?

The foreign corporate world is itching to come to India. They just want to be properly educated and guided. This is driven mainly by the geopolitical situation, supply chain diversification and the pull of India as a stable economy. On the other hand, when oil prices rose to $100 billion and the US started raising, international portfolio investors sold a lot and now will look for re-entry points. It is very difficult for any international investors to say that they are not impressed by India’s story. Today, India is the fastest-growing economy in the world. There is nobody who is talking about a growth rate below 5.5 per cent. I think we will do more than what the consensus expectation is.

What is the reason for the recent rise in credit card outstanding?

Relative to the number of bank accounts, the number of credit cards is less than 5 per cent in India. When the numbers are low, the rate of growth can be misleading. Bankers now feel more confident in issuing credit cards. A lot of data is now available to banks to verify employment, frauds, addresses and past track records.

HSBC is using the best of digital, analytical capabilities and machine learning to try and make sure that it identifies the target customer early, accesses them early, and offers them a good experience when it comes to onboarding and in subsequent journeys, whether it is a credit card, personal loans, mortgages, wealth and insurance.

What is your view on capital markets?

I will answer in a counterintuitive way. Let’s say in December 2021, I were to tell you that there will be a war in Europe; that inflation in the US is going to be 8-9 per cent and the US will take rates from 0 per cent to 5 per cent; that oil prices will increase from $55 a barrel to $110 a barrel; the RBI will raise the rate from 4 to 6.5 per cent; and foreigners will withdraw $30 billion. What would you think the stock market would be doing? You would say that sell everything and exit. Where is the stock market today? It is at or close to its all-time high. After all this, this is where we are (near record-high stock market). What if there is some runway without a hiccup – no war, no oil issues, US Fed is done (with) rate (hikes), and the RBI is done (with) rate (hikes). With that background, I certainly tell people that this is a reflection of a new India story. There are people around the country who are beginning to believe that the future is very positive.

What opportunities do you see from Citi’s exit from consumer banking business in India?

For us, India is an exciting story, a great opportunity, but the same story is available to everybody. Both on a relative and absolute basis, we think India is the place for any bank, particularly for a global bank like us, to make a very significant mark. We already have a sizable presence here. HSBC India’s 2022 reported profit before tax (PBT) was $1.27 billion. We see no reason why the momentum of growth should not accelerate further.

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