More than 170,000 Indian
millionaires reside outside India’s borders, making the
non-resident Indian (NRI) sector one of the fastest-growing in
global wealth. As bankers predict increasing revenue growth, Eman
El-shenawi asks whether the rapid growth of the global NRI business
could lead to growing pains.
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“I’m not worried
about any significant threats to this market; there is a lot of
room for strong growth.”
That is Srinivas Siripurapu’s take
on the Non-Resident Indian (NRI) segment and as head of Southeast
Asia and South Asia, he is in prime position to gauge the market’s
potential. This increasingly prominent wealth segment is expanding,
and expanding fast. Yet growing pains, including a war for talent
and inaccurate reports on market sizing, could cloud the
horizon.
NRI banking in its various forms
has had a presence in wealth markets for about 25 years. Beginning
as a transactional service, popular with Indians living offshore
sending money home, it has now matured into a highend,
sophisticated space.
Most wealth managers now have an
Indian offering and have become increasingly focused on serving the
global segment. Its scope is spreading too. Now many global banks
have broadened their NRI practices to the South Asian demographic –
serving high net worth (HNW) customers from Bangladesh, India,
Pakistan and Sri Lanka.
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By GlobalData“It is a client base with extremely
high growth, which means it is good business for us,” says
Siripurapu.
Measuring NRI
wealth
The growth potential of the NRI
segment is clouded, in part, by the difficulty in tracking its
precise size. Industry consensus estimates the global NRI wealth
pool could now total $1trn in net assets.
This is a very broad definition,
which takes in all NRI assets, both liquid and illiquid, including
residential holdings and jewellery. More recently, this $1trn
figure has been broken down into quantifiable chunks.
Estimates put global investible NRI
HNW wealth at $500bn. When illiquid assets are excluded, the pool
of liquid NRI assets stands at between $50-70bn.
In 2006, the Merrill
Lynch/Capgemini World Wealth Report estimated the global
offshore Indian HNW population at about 150,000. Barclays Wealth
now estimates that the post-crisis population has swelled by 10-15%
and assets under management (AuM) have grown by 25-30%.
NRI: an extended
definition
Traditional definitions of NRI
banking, relating directly to people of Indian origin, have
recently become blurred. The global nature of today’s NRI client
have created a client segment that is becoming harder to
define.
Citi Private Bank director Vaibhav
Sharma says Citi now refers to NRI clients as Global Indians in an
effort to attract onshore as well as offshore clients.
“[The term] ‘NRI’ brackets people
in a very retail set up. ‘Global Indian’ does not limit us to look
at clients who only live offshore, but also clients that live in
India with global needs,” he says.
“Historically, NRI banking has
always been about money flowing into India,” explains Sharma. “But
we also want to be part of the great surge of wealth which is being
created in India and other emerging countries, coming out and
flowing into the developed world.”
Sharma says multi-jurisdictional,
multi-requirement led clients cannot be bundled into a particular
niche.
“One example is clients who are
third-generation Indians, who made all their wealth in the UK, have
substantial investments in India and live in Dubai. Where do you
bracket them?” asks Sharma.
Royal Bank of Canada (RBC) has
recently rebranded its NRI unit as ‘Global South Asian,’ estimating
that 60-70% of its clients are of Indian and South Asian origin,
while 20% are identified as Caucasian due to cross-border trade
connections with India.
Post-crisis
trends
Deutsche Bank
Private Wealth Management’s (PWM) Asian businesses is divided into
four major segments: North Asia, South-East Asia, Onshore Asia and
Global South Asia. The NRI business is globally branded as Global
South Asia and has more than 60 professionals based in 6 locations:
London, Geneva, Zurich, Dubai, Singapore and Hong Kong.
Head of Global South Asia for
Deutsche Bank PWM, Salman Mahdi, estimates that growth over the
past seven years has raced along at 40% per annum.
He forecasts this to slow to 25-30%
per annum over the next three to five years. Deutsche does not
disclose AuM figures for its NRI business, but Mahdi says Global
South Asia clients represent more than 15% of its Asian business
which has AuM of about €36bn ($48.6bn).
“One of the effects of the banking
crisis is that there is now a much higher level of banking
concentration and selectivity on the part of the client,” says
Mahdi. “While typically major NRI families may have had ten or 15
banking relationships in the past, post-crisis they have brought it
down to three and four.”
This has now fed into consolidation
trends; clients became more selective in choosing their banking
relationships, leading to a higher concentration of assets being
managed by the bigger banks.
The institutionalisation of wealth
management is also on the rise. Mahdi says there are a lot more
family offices and structured investment operations. Many clients
now look for much better custody and reporting services and want a
much more professional overview of their investments and asset
classes.
NRI-specific
products
Industry-wide, the main highlight
of NRI offerings is the remittance facility, which allows the
client to send money to India which is then received by the
recipient in rupees.
A popular banking account model is
the FCNR (Foreign Currency Non Resident) account, a fixed deposit
account maintained only in foreign currencies, with untaxed
interest earned in India. Another is an NRE (Non Resident External)
transactional account, for rupee funds in the form of savings,
current or fixed deposits.
Barclays Wealth’s Srinivas
Siripurapu highlights funds, bonds and equity structures as
favoured products amongst the bank’s NRIs.
“For clients interested in fixed
income, we have a number of dollar-denominated bonds issued by
corporate entities mostly outside of India,” he explains.
“There are other equity linked
notes and structured notes which we can adjust to the client’s
taste and their risk appetite,” explains Siripurapu.
Mahdi, explains that credit-linked
notes, linked into the local currency market, are an especially
NRI-specific product.
“A lot of Indians believe that the
Indian rupee will appreciate and that India is a very good credit
risk – so if you combine the bullish view on the credit risk and a
bullish view on the currency, you can actually package a lot of
very interesting products,” says Mahdi.
Advisory vs discretionary
mandates
Scorpio’s inaugural 2011 Future
Priority report found that HNW individuals in India, sampled
from 1,800 Asian millionaires, want to be seen as financial leaders
and innovators within their business (see page 3).
Banks have tapped the NRI eagerness
for business control and so focus heavily on their advisory
services.
“A lot of the NRI families treat
investments as part of their business. They are very hands on,”
explains Mahdi. “The days when they used to hand out discretionary
mandates have gone.”
Instead, Mahdi has seen an increase
in targeted, focused, managed product mandates from clients, such
as Asian bonds or ‘X-Markets’ UCITS-compliant hedge funds portfolio
mandates.
At RBC, Global South Asia head
Sumit Sibal says that their Global South Asian client segment is
100% advisory: “You can call it a cultural thing, but clients are
involved in every step of the decision-making process.
“The clients have a very strong
affinity to all things Indian, so if you have a scenario in India
today where bank deposits may pay them 9 or 10% (such as the State
Bank of India), NRIs are used to that double digit return,” says
Sibal.
“If you bring them to a traditional
discretionary space, the chances are that advisory would suit them
better than discretionary because they are looking for specific
yields, protection and security,” he says.
Global NRI
opportunity
Since it was set up in January
2009, RBC’s Global South Asia team’s AuM has doubled every 12
months, although the bank would not disclose exact AuM figures.
Sibal has spotted geographical market hot spots the bank is
interested in tapping.
“In the last 12-18 months, we’ve
seen a lot of activity coming out of India, there is a lot of new
wealth being generated there, in need of a lot of structuring with
overseas investments,” says Sibal.
“I also see high volume growth in
Spain and Africa, where we have pockets of clients. The UK and
Middle East bring us a consistent stream of clients that are
established there from first, second and third generations – they
are ‘business-as-usual clients’,” adds Sibal.
He also reveals that RBC has seen
an uptake in lending for UK clients with differing requirements due
to heavy interest in credit and investments. Prospects coming out
of India and, more broadly, the South and South East Asian regions,
show more focus on fiduciary services, trust structures and setting
up investment businesses.
Complementing this, the Scorpio
study reported that the Asian wealth confidence index is currently
at a high, with 81% of the 1,800 Asian HNWs surveyed confident that
their wealth will increase in the next 12 months.
Sibal says that the common trends
remain investment driven, as wealth preservation takes a back seat
and wealth growth ambitions direct the market.
Wealth grows faster than
talent pool
With the NRI segment requiring
specialist structures on all fronts, a big challenge is
competition, particularly surrounding the industry war for
talent.
At Deutsche, Mahdi oversees a
65-strong team based in London, Geneva, Zurich, Dubai, Hong Kong
and Singapore. He says banks have speedily recognised the NRI
growth opportunity and are throwing their best resources at the
segment.
“In Asia, there is considerable
staff turnover in the NRI space, which affects all of us because
banks are betting very aggressively for NRI specialist bankers,”
explains Mahdi. Barclays Wealth’s Srinivas Siripurapu agrees,
adding that the wealth of the segment is growing much faster than
the talent pool.
“Unfortunately, that is the
reality, there is a war for talent,” says Mahdi. “A historical
advantage for banks targeting NRIs is that India has produced a lot
of bankers over the years and many can transition from being
corporate bankers to private bankers, or onshore to international
bankers, because they have the fundamentals and the raw materials
in terms of knowing the business.”
Citi has about eight relationship
managers in six locations that specifically focus on Global Indian
clients with more than $25m in assets. Sharma says it is looking to
expand this team but will not disclose where this increase will
occur.
A ‘one-way
train’
In the future, some players
estimate banks’ NRI services will need to evolve as post-crisis
client demands increase. Deutsche’s Mahdi says banks need to have a
strictly segmented approach to the different parts of the market in
order to serve the growing number of NRIs.
“There are so many emerging
affluent people in this space so banks will have to have a much
more segmented approach to this market,” says Mahdi. “The UHNW
banks will have to have a much more integrated model with their
investment banks, the mass affluent banks will have to have a much
more attractive technological interface, because there is quite a
lot of differentiation in terms of what clients want.
“Either way, NRIs will continue to
be interested in getting back into markets that they are familiar
with.”
The NRI market has attracted
industry attention as a one-way train, with the NRI population
boom, an increasing wealth pool, real estate and stock markets
moving up and a strengthening rupee. But as India grows and matures
as an economy, the global NRI market requires more targeted
research to fully understand its potential.
Bankers, however, remain optimistic
and are assured by the presence of wealth in the market,
forecasting an ever-expanding sector. Citi’s Vaibhav Sharma says
that any red flags in the NRI market that may come up along the
way, will only be small bumps on the road
“I don’t see the traffic slowing down,” Sharma concludes.
See also: Rise of Global
Chinese?
Asian HNW: wealth confidence
up
