Non-Resident Indians (NRI) are the world’s largest expat community, and a diaspora whose wealth is growing. But how are their wealth management needs being catered for? Private Banker International (PBI) interviewed various players to benchmark how different players are serving the NRI population.
The NRI community mostly live across the Middle East, but many also reside in the US, UK and Canada.
NRIs’ wealth is estimated at about $915bn and is expected to grow to $1.4trn by 2019 according to a report by WealthInsight.
India also ranks seventh out of 30 countries with the largest number of billionaires, according to the 2017 Wealth X Billionaire Census.
It is little wonder then that the private banking arm of Singapore’s second biggest lender, OCBC will reportedly be adding 25 relationship managers to its Dubai Office by 2020 in a bid to attract more business from NRIs.
The bank did not respond to a request by PBI for comment.
Satheesh Krishamurthy, head of affluent business at Axis Private Bank, says: “From a private banking standpoint, the NRI community is about 30m strong, which remits about $60bn [a year] to India.
“No private bank can ignore this stream of wealth.”
But what do private banks and wealth managers actually do differently when serving a HNW NRI client versus other clients?
Research by PBI shows that in most cases there is little difference in the typical product or account offering for NRI and non-Indian accountholders.
This is because some banks see having extensive market knowledge on India’s investment climate as the key way to maximise their clients’ wealth.
Ravi Sidhoo, executive director at Coutts Private bank in London, says: “We don’t have any specific “NRI products”, we do however, have strong market knowledge of the global NRI community specifically arising from Asia and Middle East.
“Products and services offered to [NRI] clients vary on the complexity of their situation.”
Services that NRI clients at Coutts can benefit from include: offshore booking in Jersey, currents and savings accounts, discretionary and advisory portfolio management, to name a few.
ICICI Securities- India’s second largest private bank says the fundamental difference in the product offering between NRI and non-Indian clients is brokerage fees.
Ashish Bhatta, a former wealth manager at ICICI Securities in Mumbai who left the bank in January 2018 for study leave, says: “What we provide them [NRIs] are additional brokerage plans. There are 7 slab rates [amounts], you can prefer any of the slab rates and it charges you + GST [goods & services tax].”
Bhatta says both Resident Indians (RI) and NRIs get to open a ‘3 in 1 Account,’ which stands for Saving, Trading and Damat. While NRI clients have to pay higher brokerage fees compared to their RI counterparts, Bhatta says NRI clients have up to 15 years to use the credits they accumulate from their brokerage plans.
Bhatta adds: “Even though ICICI has some of the highest brokerage fees in the market, the clients are still with them. So that is one of the challenges that we face. Research is on-going on what can be done to minimise the brokering fees.”
Suvo Sarkar, senior executive vice president and head of retail banking and wealth management at Emirates NBD, says: “NRI customers look at banking relationships both in their country of residence as well as back in India. We opened our first fully-functional branch in Mumbai last year that will also support high net-worth NRI customers looking for wealth management solutions back home.”
NRIs can typically open one of two accounts in India: NRE and NRO. The NRE account is freely repatriable, while the NRO account has restricted repatriability. NRE accounts are also tax-free.
NRE is typically suitable for an Indian wanting to just save money abroad; meanwhile an NRO account is for those who will be earning taxable income.
Sarkar says Emirates NBD is in the process of developing robo-advice services to better serve wealthy clients, including NRI customers.
The Middle Eastern bank has also introduced a set of online and mobile solutions specifically for NRI clients over the past year.
One digital product introduced by the bank is ‘DirectRemit to India’, that allows transfers between the United Arab Emirates and India, as well as many other corridors, to take place within 60 seconds.
Another feature is Facebanking. which enables the bank’s clients to communicate 24×7 from Emirates NBD’s revamped bank website.
Other banks also say they are strengthening their digital strategies. Krishnamurthy comments: “We are investing very heavily in [digital transformation].”
He adds that Axis bank clients can now invest in mutual funds both domestically and Internationally in any asset class through a mobile app.
Axis Bank has also created a feature called ‘One Glance’.
We make sure customers have full access to their assets and liabilities in “one glance” which helps customers who have assets across multiple jurisdictions, he says.
He adds that the bank is focusing on simplifying the client on-boarding process.
“There is a massive effort on digital enablement. Right from account opening to account management, wealth management, to borrowing, all of this we are trying to enable digitally.
“We are simplifying life of all NRIs, it is very important their lives are simplified.”
Krishnamurthy says NRIs are subject too much paperwork, and thinks robust technology enabling NRI clients to open accounts virtually will be paramount for banks to serve them successfully.
Experts also tell PBI that Indian HNWIs are moving away from real estate, and are more open to investing in other asset classes.
Krishnamurthy says: [Indian NRIs] are becoming a very lucrative [segment] because a lot of those who invest in real estate as an asset class are now far more open-minded to explore different type of asset classes, and fundamentally financial assets
Bhatta says: “More and more NRIs are coming to India. Investments are widening up for them, they used to only invest in mutual funds, and nowadays [they are investing in other assets].
Sidhoo identifies a lack of liquidity as a key trend he sees while serving HNW Indian clients.
“A lot of NRI clients are extremely successful in their businesses, or in their profession, but sometimes that means that the private side of their life can be ignored.
“There is now a wealth transfer happening to the next generation because there are a lot of NRI clients now at an age where they have 30-40 years in their business and the next generation is now taking over.
So these clients are either considering the sale of their businesses because the next generation is no longer interested in pursuing the same line of business.
“A lot of these people see their business and themselves as a single entity. Additionally for a large number of entrepreneurs, the majority of their wealth is usually sat within the business.
“You may be an owner of a very wealthy and successful business, but you may also have very little in your bank account.”
This is in line with what Krishnamurthy says.
“Customers don’t differentiate the money they have in their company versus their private wealth. It is important as they create more and more larger asset bases for themselves, or as they are ready to expand, they are ready to build a clear ‘Chinese Wall’ as they approach some of it.
“A lot of them end up holding large real estate assets and if you want to look at the performance in terms of returns that are available, [they can do better elsewhere] and they often pose a liquidity problem.”
All the players interviewed PBI say improving private bankers’ knowledge, and more importantly enhancing NRI clientele’s market knowledge, is needed for the industry to thrive.
Sidhoo says: ”That sort of contribution on the knowledge and helping them appreciate some of the realities, [for example] when I am a rich person or a rich individual what are the type of things you need to be careful about and what are the type of things that are relevant to you. I think that is something a lot of private banks could do more of.”
Krishnamurthy says: “There tends to be a lot of [missed information] which customers end up discovering after they find a problem.
“There tends to be a big gap between what the customer understands of the requirements and what the relationship ends up communicating.”
“So competency building is the key focus area. Not only the front line but also the back-end. That is one big pillar.”
Bhatta says: “I want to see India with more of CFPs [chartered financial planners] in action. The more CFA [chartered financial analyst] and CFP qualified people there are the more NRI clients can be helped in better ways by wealth managers.”
Coutts held a seminar last year named ‘Life After Exit’ to enhance the knowledge of NRI clients and particularly those who are considering selling their businesses.
Sidhoo says this is likely to help them deal better with the sudden ‘liquidity’ that arises after the sale, and how to invest that better.
What is surprising is that while private banks across the globe are adopting different measures to target Indian HNWs, many think that market knowledge is their strongest asset and the way forward to better serve Indian HNWs.
Many Indian NRIs are likely to have very international profiles, abundant investment opportunities but can be overwhelmed with the level of information out there.
It is clear Emirates NBD and Axis Bank are enhancing their digital strategies that will greatly help NRI clients who live and travel across multiple geographies.
But investment in training private bankers and improving the client’s knowledge will be the first step in helping this profitable target audience thrive.