UBS bites the dust in India

Just like all the other big banks.

"Another one bites the dust". UBS is the latest in line of big western banks to be exiting the Indian wealth management industry. UBS will also be winding down its foreign exchange business in India as part of its global strategy to conserve capital.

A UBS spokesperson told Private Banker International that, over a span of two years, the Swiss banking giant will shut its single branch in Mumbai and "concentrate on its core businesses" rather than on capital intensive businesses, even though it is keeping its corporate client service division (including M&A, equities and debt capital market services) intact in the country.

Quite recently, Morgan Stanley surrendered its wealth management unit in India by selling it to Standard Chartered. Previously, Goldman Sachs also exited India’s wealth management arena. 

What makes India such a difficult market to survive in for foreign players?

Like most countries across the globe – now more than ever – regulation is a key concern, one that is amplified when it comes to India. With high entry barriers and a wing-clipped approach to the product universe, the Reserve Bank of India only keeps tightening controls.

This year, in the annual monetary policy statement on May 3, the RBI proposed a new banking structure involving differentiated licencing regime for domestic and foreign banks instead of granting a universal banking licence.

Beyond regulation, however, a bigger factor may be the fact that nuances around how the wealth management business, particularly, works in India is actually quite local.

A market like India has a number of things going for it. According to the World Wealth Report 2013, released by Capgemini and RBC Wealth Management, India experienced 22.2 per cent growth in its HNIs population, second only to Hong Kong in the Asia Pacific region.

But the key to understanding and thriving in a market like India is to have a deep rooted view of the local sentiment and clients’ trust that local banks have.

Indian family offices have a bigger trump card having handled key rich families’ wealth over generations, but the trust factor that local private sector banks such as ICICI, HDFC, Axis Bank, Kotak Mahindra Bank, to name a few, have achieved is tough to compete with. And they are catching up with global best practices fast.

Another factor that gives local banks an edge, perhaps, is the fact that India is a completely onshore market, everything being rupee denominated, and the investment products on offer are still relatively basic, unlike Western mature markets.

When I spoke to Atul Singh, managing director and head of global wealth and investment management for Merrill Lynch in India, back in 2011 for a feature, he told me that foreign banks such as Merrill Lynch, Barclays, JP Morgan, Citibank, and Credit Suisse, being experienced players globally, have taken the lead in developing innovative products targeting the HNWI and UHNWI. But the challenge in India, as an industry, is "how to make money from assets" due to the product universe still being fairly vanilla.

It’s not just India that is difficult to deal with, though. Russia is even more notorious for western bank exits, with Barclays and HSBC quitting retail and commercial banking operations in the region over the last couple of years. Reason? Local banks’ dominance, with most of the market share taken by Russia’s largest lender by assets, Sberbank, followed by VTB.

French bank Societe Generale’s Russian subsidiary, Rosbank, has been in the limelight for the wrong reasons recently with its CEO, Vladimir Golubkov, being fired and acquitted on bribery charges. But SocGen, being one of the few foreign banks still holding its ground in the statedominated banking sector, has shown optimism with its chief executive, Frederic Oudea, saying the lender aims to deliver a "sustainable return on equity of over 15 per cent" in Russia by 2015. Let’s see.

As for India, it will be interesting to note how local banks up their ante with another Western lender exiting, mould themselves to further regulatory changes, and how the other remaining foreign banks make space for themselves and the global approach they offer. "Pressure on people - people on streets". Queen really has said it all.

Photograph: Getty Images

Meghna Mukerjee is a reporter at Retail Banker International

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.