With a rapidly growing private banking portfolio of more than $4bn in client assets, HDFC Bank is one of the leading players in India’s young wealth management industry.
In the past three years the bank’s private banking business has tripled in size and, according to Abhay Aima, group head of equities, private banking and third party products at HDFC, this growth is expected to continue. In light of the recent turmoil in the financial markets, he says that the bank’s high net-worth customers have gone back to basics and are opting to invest in simpler products.
“We continue to offer a variety of products to our customers such as venture capital funds, real estate products and structured products, but clients aren’t specifically asking for them,” says Mr Aima. “Some products generate more interest. For example, we saw considerable activity in relation to the Mirae Asset China Advantage Fund.” This is India’s first pure China fund that invests only in Chinese markets, including Hong Kong markets. Mr Aima says that the interest was driven by the fact that China is the fastest growth market in the world and several customers felt it was an opportunity to diversify their investments.
Building A franchise
One of the key trends in the Indian wealth management market is the growth happening in the tier two and tier three cities. Unlike most of its private banking peers that limit their wealth management activities to metropolitan cities, namely Mumbai, Delhi, Kolkata, Chennai and Bangalore, HDFC Bank has been actively investing in building its wealth management franchise beyond these top-tier cities.
“Around 80 percent of our high net worth clientele currently resides in the big metropolitan cities but in percentage terms, growth is coming from the smaller cities and towns,” explains Mr Aima. Between 2007 and 2010 the bank’s wealth management business experienced around 200 percent growth in the big cities while in the same period, the growth in smaller cities such as Goa, Agra, Panipat and Kanpur touched 900 per cent.
“Of course, the base in these cities was rather low, but the growth is still remarkable. These cities have tremendous potential. Although much of the wealth here resides at present with the business community, there is a growing class of wealthy salaried professionals that are more amenable to advice on wealth management and is willing to pay for it as well,” he adds.
In its efforts to target the tier two and three cities, HDFC Bank, which was named as Best Private Bank in India by PWM in 2010, has hugely benefited from its existing network of more than 2000 branches across the country.
Foreign banks operating in the country, most of which are actively wooing high net worth clients as well, such as Merrill Lynch, Morgan Stanley, HSBC, Citi and Credit Suisse, are restricted by the banking sector regulator in the number of branches they can open. For instance the largest foreign bank in India, Standard Chartered, has less than 100 branches across the country. However, other domestic banks with comparable or even larger branch networks than HDFC have not been able to make a substantial dent in the markets beyond the top few cities.
Mr Aima says the bank’s success in tapping the wealthy in the tier 2 and 3 cities and towns lies in its focus and well planned approach. The bank has 18 private banking centres in the country and has adopted a hub-and-spoke model to enhance its private banking network. Relationship managers based in each private banking centre service the cities around this centre.
“Additionally, we have relationship managers in all our 2000 branches that are constantly working to migrate clients from the mass affluent customer segment to private banking,” says Mr Aima. HDFC Bank, he says, has developed a deep understanding of the wealth management business in these cities.
“The high net worth individuals in these towns and cities are predominantly engaged in the farming or export-import industries where business is cyclical in nature. As a consequence, funds flow patterns are different. Additionally, the level of exposure to sophisticated products is different from the top tier cities, as is the risk profile of clients. We have customised our wealth management offerings in these cities keeping all these factors in mind.”
Mr Aima believes HDFC is well poised in the wealth management space vis-à-vis foreign banks. The bank has got the reach – through its branch network – and does not suffer from operational issues of foreign banks where operations are driven by regional offices that may not always understand the local market.
A different business model
“India is a diverse country with specific local requirements. It has a different ethos and different risk profile than other regions. Superimposing international business models that do not always reflect realities on the ground does not often work in India, he says.
