By Sumeet Chatterjee
MUMBAI (Reuters) - Foreign private banks are bulking up in India once again after downsizing in the past few years, anticipating new opportunities to advise Indian millionaires eager to cash in on an Internet start-up boom and on signs of an economic revival.
Bankers and consultants surveyed by Reuters said foreign private banks will hire wealth managers this year and increase their headcount by a fifth, compared to a 10-15 percent fall in each of the past two years.
Barclays (L:BARC), which runs one of India's top private banks, said its headcount could rise by 15-20 percent in 2015.
Wealthy Indians are looking to put money in new-age technology companies after they watched savvy foreign investors such as Singapore's Temasek Holdings (TEM.UL) and Japan's SoftBank Corp (T:9984) scramble over the past few years to get a piece of Indian e-commerce companies, including Flipkart
The start-ups offer a new investment route for the millionaires, who are using wealth managers to guide them on these investments.
So far, the rich in India channelled funds into traditional products such as equities, bank deposits and government bonds. And an annual cap of $250,000 on overseas remittances by onshore Indians effectively rules out significant investments overseas.
To tap into this demand, venture funds are being launched that seek to raise money from high networth individuals (HNIs) for investments in start-ups. At least two venture funds are currently raising a combined $160 million from Indian investors including wealthy individuals, to invest in start-ups, people involved in the matter said.
"In the first round, it was mostly foreign investors who were chasing the start-ups. Now the Indian HNIs are waking up to this opportunity," said Atul Singh, India head for wealth management at Bank of America Merrill Lynch (N:BAC).
India's e-commerce firms last year attracted more than $5 billion in investment, the bulk of it from overseas investors, compared to less than $2 billion in 2013.
"The return from these investments could be double that of the public equity markets," said a wealth manager at an European bank, declining to be named. "Of course, the risk is also higher and that's why the clients need advice."
Another reason for the enthusiasm among affluent Indian investors is the economy, which is expected to grow 7.4 percent in the year ending March and at a faster pace than China's in the years ahead as a new government kickstarts economic reforms.
STIFF COMPETITION
For foreign private banks, whose Indian ambitions have so far been held in check by intense competition from local players and sluggish revenues, the developments are welcome.
They are drawn to the long-term potential of the market, where individual financial assets are expected to more than double from last year's level to $5 trillion by March 2019, according to local wealth manager Karvy.
While more than half a dozen foreign private banks operate in India and employ about 300 wealth managers, they are saddled with higher operating costs and struggle with a limited branch network compared with their local rivals.
As a result, the Indian units of some banks, including Credit Suisse Group AG (VX:CSGN), slashed headcount in the recent past. Others, such as Morgan Stanley (N:MS) and UBS AG (VX:UBSG), exited altogether.
The business landscape is changing now, bankers said.
A regulatory move last year for private banks to separate client advisory services from transactions carried out on their behalf will make wealth managers focus on advice and give them an edge over local rivals because of their global network, boosting fee income and stabilising revenues, bankers said.
"As a market, we are coming closer to the reality that if you want impartial advice you will have to pay a fee," said Satya Bansal, head of India wealth management at Barclays, which employs 40 wealth managers and plans to add more.