Private banks in India are generating rich seams of investment assets from clients in their corporate and investment banks as business owners continue to benefit from Indias growing economy.
Standard Chartered (StanChart) in India is generating 50-60 percent of its new assets from referrals between its small and medium-sized business (SME), corporate and investment banking arms. Another local player, ING Vysya, a joint venture formed in 2001 between ING and domestic bank Vysya, says around 40 percent if its net new money is coming from clients elsewhere in the bank.
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The strategy has helped StanChart increase its assets under management in India from $100 million to in excess of $1.5 billion, since setting up operations in the country in 2007.
StanChart: top-three position
The exceptional growth catapults StanChart into a top-three position in the Indian private banking market, and demonstrates the effectiveness of the private-investment banking model in the country. It also gives an insight into the wider success of StanChart in the Asia-Pacific region since its ambitious launch in 11 cities in five weeks.
Peter Flavel, head of private banking at the group, also masterminded the takeover of American Express Bank, creating a business with $34 billion in assets under management and 350 relationship managers, which it plans to increase to 450 over the next year.
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By GlobalDataIt is understood StanChart is the fastest-growing private bank in Asia, and is now the third largest player behind UBS and Citi Private Bank in southeast Asia measured by number of relationship managers.
Soumya Rajan, head of StanCharts private bank in India, said part of the success was a result of the large amount of untapped clients the bank had in its wholesale banking business. She said these clients were referred to in-house as StanCharts acres of diamonds.
What we have found since launching the private bank is we have just not been able to leverage the consumer bank, said Rajan, speaking at the roundtable, organised by PBIs parent company, VRL Financial News.
We have actually very successfully used the wholesale banking platform in terms of the middle market and small and medium-sized enterprises, added Rajan.
We have a very wide presence in India in these areas. When we launched the private bank, we were looking at existing customers because invariably, whether it is on the consumer or wholesale side, we have clients who have had a mortgage, credit card or banking relationship with us. We also had the integration with Grindlays a few years ago and more recently American Express.
So we have a lot of relationships within the consumer and wholesale bank already, and the strategy has been to tap the existing relationships we have rather than seeking out new relationships. We are now looking to build our capability in terms of our global private banking proposition and value, and bringing that to the customers we have.
We believe we have all of these assets sitting in our back yard and it is just a case of having the ability to bring that to the fore and give clients a private banking experience.
The success of these strategies in India is partly dictated by the source of wealth of Indian clients, which tend to be business owners and wealth generators. This compares to a market much more focused on inherited wealth in Europe and the US.
The inherited wealth tends to come through the consumer side, said Rajan.
They tend to be in priority banking which is one tier below private banking. They come through that because they have had relationships with the bank on some occasions for 40 or 50 years. These are the two streams through which the private bank gets clients.
Investment banking background helps
Samir Bimal, head of private banking at ING Vysya, said these referrals could be aided by having private bankers that had investment banking experience. A third of ING Vysyas private bankers have a capital markets background.
Especially in the Indian context, there is not so much of a delineation between private clients personal and commercial wealth, unlike in Europe, said Bimal. The investment banking departments tend to be speaking to a very similar profile of client to the private banks.
They will be talking about ideas, capital generation, capital markets advice, which is one of the primary sources of capture in private banking too. It means you can deploy the wealth they are creating.
A lot of the wealth generation in India has happened in the last five or eight years. If clients are at the stage where they are ready to unlock this wealth, it is a lot easier for the investment bank involved in this process to refer that business to its private bank than it is for all of the other wealth managers queuing up and waiting for the clients wealth.
The success of both ING Vysya and StanChart in the country through their investment banking and wholesale operations indicates the private-investment banking model is a particularly useful tool in capturing Indias private wealth, particularly at the higher wealth models.
ING Vysya does this through INGs capital markets operation in India, but it has also set up partnerships with smaller boutique investment banks to generate further referrals.
