Mumbai: UK-based Standard Chartered Bank is one of the oldest foreign banks, with over 160 years of continuous presence in India and sees the South Asian country as one of its main growth engines. In an interview, Benjamin Hung, the bank’s Asian chief executive, said that India is a powerhouse where people can invest. The country will be seen as part of the China Plus One strategy for the world’s businesses and a great place to diversify, he said. Modified extracts:

The West may soon enter a recession. So what do you foresee for the Asian markets?

Standard Chartered has a presence in 59 countries, of which Asia accounts for approximately 70% of the group’s income and profit. Although we are based in the UK, Asia is pretty much the core of our business and we are present in 21 markets in Asia. As I see it, there are some big economic blocs: Europe is big; the United States is big, and Asia and Latin America are also big. Europe will probably go through a more difficult time next year. The United States, due to the tightening of monetary policy, will probably see a slowdown in growth. But I still think Asia will remain a relatively strong economic region.

Does the economic situation in India inspire confidence?

India is definitely the one leading the South Asian region. There is also ASEAN and China. These three are very powerful engines, individually and in a connected way. In recent decades, the world has operated on the model of Eastern production for Western consumption. Going forward, more and more, it will be the East that will produce for the consumption of the East, and that change will be very important. For India, I will say the stars are very much aligned. It is one of the few markets to be in an optimal location. It is doing well economically, but has yet to reap its full demographic dividend. When India’s average gross domestic product (GDP) reaches a certain stage of average income, the acceleration of consumption will be very rapid. We haven’t gotten to that point yet.

What are the areas of focus for the bank here?

There are many areas of focus because India has no shortage of growth. India is a powerhouse that people will invest in; it will be a China plus one strategy and a great place to diversify. With the government focusing on Production Linked Incentive (PLI) schemes, we will hopefully get the whole industry going and there is a lot we can do to help redeploy supply chains.

Will rising interest rates affect Standard Chartered Bank?

For a bank like us with high liabilities, the increase in rates is positive. However, excursions that are too fast and too abrupt will impact our customers’ ability to repay. We think a moderate hike in interest rates is a good thing, but if it’s too abrupt, we should make sure customers are liquid too. We’re in a pretty good position because of margins going up, but there’s a lagged effect on economic growth and potential loan origination requirements.

Is India at risk of capital flight in the current scenario?

All I can say is that on a relative basis, India is better than most. India is not at high risk of capital flight compared to many other markets. The question is capital flight to where? India has always had, on a relative basis, a very high valuation. While some of it is captive, some of it is all-round growth expectations. I don’t think growth expectations are unjustified.

What’s your take on underwriting new-age companies?

Well, the banks are learning. Bankers are always taught to look at spreadsheets, historical cash flows and balance sheets, profit and loss, among others. The new companies don’t have any, so we have to adapt. Obviously, we need to look at the underlying business and the prospective model and see if you trust an entrepreneur. We sandbox and carve out X amount, provided it is in or around risk appetite. Not everyone will be successful, but if you count on success stories early enough, they will remember you.

What are the short-term risks in China and Sri Lanka?

China commercial real estate risk (CRE) is an industry problem that is still ongoing and has not been fully resolved. Looking ahead, our exposure to China CRE represents approximately 5% of our total exposure to China. Not everyone is bad, but for those who are having a challenge, we need to help them. Sri Lanka is an example of a nation dependent on the availability of foreign reserves. When you have dollar debt, you are dependent on tourism and you need to buy oil and, therefore, you need foreign currency. Sovereign risks during this type of high dollar rate and commodity prices pose issues that may require multilateral support to tide over.


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