BNP Paribas aims to double Indian business by 2015

One of the six strongest banks in the world, BNP Paribas has no plans of setting up a retail banking activity in India. But it does harbour ambition to create a platform in India that will offer a large and comprehensive range of financial products, except savings/checking accounts and an ATM network. Jacques Michel, CEO & country head of BNP Paribas India, shares his plans with DNA

In the last 20 years you have worked in various Asian countries. What do you like about India the most?
India is poised at an exciting phase in its growth story and I am happy to be here at this point in time. India is among the attractive business destinations, with a large pool of English speaking, skilled workforce, low operational costs and an established and tested legal framework. India’s entrepreneurial spirit has been evident in many home-grown companies becoming multinationals, with cross-border acquisitions and the transformation it has brought through the growth of sectors such as information technology and telecom.

There are sectors where the momentum is not strong enough to seize the opportunity at hand, but it is a price that you have to pay at times for being a vibrant democracy. There are a lot of stakeholders / constituents whose opinion cannot be ignored and this can slow things down. On the positive side though, as a democracy, India’s growth model is a more sustainable one compared with other emerging markets.

The country is riding on a high momentum and its rapid growth in the recent years continues to attract foreign investment and capital inflows. India has a viable growth model, driven by domestic consumption and a young population that will provide the demographic dividend over the coming years. As one of the fastest growing economies in the world, India offers a plethora of opportunities to foreign firms, who are looking at diversifying and expanding their businesses internationally.

In which areas does India lag behind other developing economies? What are the biggest concerns in India?
The most obvious and visible area is infrastructure development, which is not yet at par with other developing economies. By keeping a sharp focus on infrastructure, India could well improve its attractiveness while competing with other countries for foreign investments.

Another area, where reforms could be speeded up, is foreign direct investment (FDI), especially in insurance, banking and retail, where market access has been restricted so far. While concerns being voiced about the entry of foreign entities are no different than those one might hear in other emerging economies, India’s global integration will benefit from the added value, in terms of product expertise, risk management, governance, etc. that these players can bring.

Lastly, setting up new business ventures here can be very time-consuming and there is definitely a case for rationalising these procedures.

The Reserve Bank of India (RBI) had released the discussion paper on the presence of foreign banks in India in January and soon comprehensive guidelines on the mode of presence of foreign banks in India would be issued. What are your expectations from this?
We appreciate the rationale behind the RBI’s wish to see foreign banks adopt the wholly-owned subsidiary route. As a bank that has had an uninterrupted presence of 150 years in India, we have a deep commitment to this country and as one of the more active corporate and investment banks among the foreign players, we are considering this route seriously. That being said, we know from experience that local incorporation means higher operational costs. Of course, the RBI has said that it will “incentivise” foreign banks, but we believe that the proposition should be a balanced one, with appropriate incentives that are in keeping with the business models of the various foreign players.

Any plans of getting into retail banking in India? What do you think are the key challenges faced by new overseas entrants in this area?
We do not have any plans of setting up a retail banking activity in India. However, we do want to create a platform in India, which will offer a large and comprehensive range of financial products except savings/checking accounts and an ATM network.

India offers a large market for retail financial products and the penetration of these in the country is still quite low. There are opportunities to develop ourselves in this field, and we will continue to focus on building our presence in the retail consumer space through joint ventures. With SBI Life Insurance, we provide individual clients with life insurance products, retail brokerage with Geojit and home finance products with Sundaram Finance.

I think the key challenge facing foreign banks, seeking to enter India in retail banking, is how to make the business profitable within a reasonable period of time. The local banks not only have a presence that is geographically widespread, given the size of the country, but they are agile too. So, for a latecomer in this scenario, achieving profitability will be daunting.

What kind of revenue does India contribute to the company? What is the expected growth in revenue in the coming years? Which are the key areas that will contribute to this growth?
Our aim is to double the size of our Indian business by 2015. India’s contribution to the group’s global revenue is expected to be 2% by then. To put that into perspective, BNP Paribas’ revenue for 2010 was about 44 billion euros. We see this growth coming from our corporate and investment banking business by adding lines such as debt capital markets, equity capital market and mergers and acquisitions. This will be complemented by an increased presence in asset gathering activities, through wealth management and asset management as well as our joint ventures, notably Geojit.