FirstRand to build wholly owned subsidiary in India
FirstRand is looking to build a wholly-owned subsidiary in India as it considers the country to be a perfect hedge for its commodity-dependent home market; the bank has opted for this method of expansion because regulators will not permit the bank to make an acquisition in the country at this time.&nbsp;DBS Bank and SBM Bank (Mauritius) are banks who have also applied to open local subsidiaries in India.
FirstRand Bank Ltd , South Africa’s largest lender by market capitalization, is building a base to eventually start a wholly owned subsidiary in India, as it sees the country as a perfect hedge for its commodity-dependent home market.

“We are here to build a lifetime business, but we are very young. We want to participate and do everything that we can do here. I think the eventual route will be a subsidiary; the question is when not whether," said Rohit Wahi, chief executive and country manager of FirstRand Bank in India, in an interview on Friday.

“...Regulations don’t allow us to buy any bank now; so, if we have to grow, we will have to become a subsidiary. To put a time frame is difficult, but for the next 12 months, we are staying a branch," Wahi said. He added that the bank may wait to turn profitable, which is expected by 2017-18.

Two foreign banks, Singapore-based DBS Bank Ltd and SBM Bank (Mauritius) Ltd have applied to open local subsidiaries in India, close to two years after the Reserve Bank of India (RBI) gave this option to foreign banks, promising near-national treatment.

FirstRand’s operations in India are six years old, but so far, the bank has only one branch in India through which it does corporate and SME (small and medium enterprise) lending in the country. Its banking record in the country has been checkered by a build-up in bad loans that has restricted the bank’s ability to grow its loan book.

The lessons have been learnt and the bank is now ready to grow its loan book after a quiet year in fiscal 2014-15, said Wahi.

FirstRand reported a net loss of ₹ 64 crore in fiscal year 2014-15, down from a loss of ₹ 77 crore in the previous year, as interest income increased to ₹ 106 crore from ₹ 86 crore. The bank also set aside a lower ₹ 8 crore in provisions for the year ended March 2015 compared with ₹ 13 crore in the previous year. After writing off two of the three non-performing asset (NPA) accounts reported last year, the bank’s gross NPAs reduced to 7.82% of the total loan book, down from 15% in March 2014.

“We went cautious on growing our book last fiscal. We found out where we went wrong on origination strategy, and so now, we have filters on who we are going to bank. We will not bank everyone. We have a clearly defined strategy now," said Wahi. Rather than banking large multi-banked SMEs, FirstRand will focus on clients with a turnover of ₹ 100-600 crore, where it can corner at least 25% of the loan demand, especially in sectors such as pharmaceuticals and auto components.

The South Africa-based lender’s loan book grew 39% to ₹ 276 crore as of March 2015 from ₹ 199 crore in March 2014, after shrinking the previous year.

Wahi said he plans to double the bank’s loan book in the current fiscal year, building on its core business of lending to SMEs and also as the bank starts giving personal loans, loans against property, and loans to small, individual-led businesses from November.

FirstRand hired Ramaswamy Gopalakrishnan, former head of SME banking at Citibank, last month to boost focus on that segment. Wahi said lending to SMEs will form the core of the bank’s lending business in India.

“We think there is enough opportunity there because there is also a thrust on Make in India. We have to find the future Goliaths from here," Wahi said.

Piyush Singh, managing director, financial services, India, at consultancy firm Accenture, said opening a subsidiary in India is a good idea for FirstRand, which also has a diverse experience in financial inclusion in its home market. “But the challenge for this bank would be to get its branding right and more importantly investing in a cost-effective technology platform for digital banking, which is the future," Singh said.

Wahi said the bank is already working on its technology offering and his strategy is not to open “hundreds of branches".

“It has to be more electronic. Sometimes it’s an advantage that we don’t have a lot of branches, so we also have to choose the right places where we open more branches," he said.