India has emerged as the second-most important global market in terms of profit before tax for Standard Chartered, the emerging markets bank.
The importance of India as a financial market is also being reflected among other international banks. The country is already the largest market in Asia for Dutch bank ABN Amro and in the first half of this year India overtook China as Merrill Lynch’s second largest revenue contributor in the region, excluding Japan and Australia.
It is also rapidly growing in importance for Citigroup, HSBC, Goldman Sachs, UBS, JPMorgan, Deutsche Bank, Credit Suisse and others.
“The growth of the private sector in India has been quite phenomenal in the past few years and secondly the regulatory environment and the financial infrastructure have improved dramatically in a short period,” said Jaspal Bindra, Standard Chartered’s director and regional chief executive of south-east and south Asia.
International banks have been key beneficiaries this year of a boom in crossborder acquisitions and foreign fundraising by Indian companies as they try to diversify their exposure beyond their home market and make use of cheaper overseas capital.
But while most bankers believe India’s growing importance to their businesses is secure in the long term, the jury is out on whether high double-digit growth rates can be sustained in the face of a slowdown in global markets. This year has seen record-breaking deals, such as Tata Steel’s £6.7bn ($13.5bn) acquisition of Anglo-Dutch rival Corus, and several chart-busting initial public offerings, which bankers say are unlikely to be repeated soon.
Brijesh Mehra, ABN Amro corporate and investment banking head for India, said: “Net of large one-off deals, we are doubling our revenues every two to three years.”
Standard Chartered reported first-half profit before tax for India of $320m, up 50 per cent on a year earlier. India overtook South Korea, which reported $195m, and is second only to Hong Kong in terms of the bank’s profits.
Standard Chartered’s Indian network, the largest for any foreign bank with 83 branches, reported operating income of $544m, of which nearly 70 per cent came from wholesale banking, including corporate finance.
South Korea had higher operating income, reporting $616m, after the acquisition of Korea First Bank. Profitability at the Korean unit has been held back by the allocation of head office expenses to its balance sheet, a retirement plan and changes in treatment of pensions. Once these issues had been ironed out “Korea and India will be neck and neck”, Mr Bindra said.