Indian private banks are increasingly expanding abroad to tap into the burgeoning Non-Resident Indian (NRI) wealth management sector over the next five years, writes Caroline Ng.
According to sister company WealthInsight’s latest report, NRI millionaire wealth is set to grow at a compound annual growth rate (CAGR) of 10.27% to US$1.065 trillion in 2017, representing an increased demand for wealth management services, including remittances.
With almost 40% of remittances worth $28 billion annually, bolstered by a weakening rupee against the greenback, NRI investments in India has increased 10% between 2011 to 2012 to $69.3 billion.
The report revealed that remittances are used to invest in stocks, term deposits, land and property, while overseas Indians’ penchant for local investments is underpinned by strong cultural ties and proactive government policies.
India’s accelerating economic growth has boosted its NRI wealth management market. However the sector remains in its infancy dominated by a few foreign banks.
While Citibank and HSBC currently lead the wealth management market, Indian private banks, including ICICI, HDFC and SBI, are starting to step up to the newfound exuberance of the NRI market.
With most NRIs located in the US, the UK and Singapore, there is an attractive opportunity for India wealth management companies to be established there to provide a readily available target market and a strategic point for regional management.
In 2010, ICICI Bank debuted in Singapore to take advantage of the strong trade and investment flows between India and ASEAN (Association of South-East Asian Nations) countries and expand its client base in the region.
The main booking centres worldwide for NRIs are concentrated in Hong Kong and Singapore due to the sophistication of private banking services and relative proximity to India.
However, the Middle East is emerging as another key NRI booking centre driven by lucrative trading links with the United Arab Emirates and other OPEC (Organization of Petroleum Exporting Countries).
Overall, the US accounts for the world’s largest number of high net worth (HNW) NRIs, followed by the UK and the UAE.
In the Asia-Pacific region, the highest concentration of HNW NRIs is in Hong Kong, followed by Singapore.
Growing interest in innovative financial products and services for the Indian high net worth community is set to further drive the maturity of wealth management market in India.
Multi-family offices gaining traction
According to WealthInsight, the trend towards family offices among Indian UHNWIs has accelerated since the global financial crisis in 2008.
However, there are a significant number of smaller families in the $30-200 million range that do not have the economies of scale to establish standalone family offices.
These families traditionally use wealth managers such as Kotak Wealth Management, which on its own, manages the wealth of almost 30% of India’s richest 300 families.
The current dearth of multi-family offices represents a huge opportunity for growth since they could allow co-investing and the sharing of due diligence and other administration costs.
The report expects more single-family offices turning into multi-family offices to take on additional investors.
Major international wealth management companies such as Merrill Lynch are also starting to develop trust businesses to cater to the needs of HNWIs in India.