Aurangzeb Muhammad, chief executive of JP Morgan's global corporate bank for Asia Pacific, talks to FinanceAsia about his top priorities for India, the sudden departure of Reserve Bank of India governor Rajghuram Rajan and China's growing interest in overseas assets. Based in Singapore, Aurangzeb joined the US Bank in 2011 from the Royal Bank of Scotland.
FA: Can you describe your current India franchise and how you see your business changing within the next three years?
Muhammad: Our business in India primarily caters to multi-national (MNC) clients with increasing interests in India and to large local corporates which are expanding their footprint internationally. In addition to advisory and investment banking, we have a full-fledged corporate banking and treasury services platform in the country.
India is also a key hub serving our corporate and consumer clients globally. It has a vast and vibrant talent pool of 25,000 employees across our franchise in India.
Business is expected to grow in line with the continued economic growth that we are witnessing in India. Its total market capitalization is expected to grow at about 12-15% over the next five years with annual growth in FDI inflow at 30-40% since the Modi government came in to power two years ago. We also expect the 'Make in India' initiative to attract more investments into the country. India's increasing trade and investment linkages with the global economy will generate tremendous opportunities for our clients.
FA: What are the top business opportunities for JP Morgan in India? How do you plan to capture these opportunities?
Muhammad: Financials and consumption are secular growth themes in India, given its favorable demographics. The consumer market has also been attractive to MNCs. The need for infrastructure is well acknowledged but it depends on the availability of capital and government priorities.
Sectors including internet, e-commerce, healthcare, education and urban consumption have drawn a lot of capital in the private markets and are expected to see more activity in the public markets.
This expected surge of business activity driven by MNCs entering or investing more in India will generate significant opportunities for us in the next few years, particularly in working capital management, cross border payments, trade finance, FX and interest risk management.
For example, we launched the 'JP Morgan Virtual Branch' last year. This gives clients an option to access all our products and services from their own desktops instead of having to physically visit a branch. It improves efficiencies and helps eliminate manual interventions. Through the virtual branch, our clients are now able to initiate key statutory payments, receive acknowledgment receipts, upload and track documents required for cross border payments, and get a detailed audit trail in the virtual branch.
We plan to include additional services in India and expand it into other geographies as well.
FA: How do you differentiate yourself from international and domestic competitors in India?
Muhammad: Our clients recognise the extensive global footprint and the fortress balance sheet are something that differentiates JP Morgan, especially in tough times.
India is a key priority market in which we continue to invest. We’ve maintained a high capital adequacy ratio and continue to operate with high quality assets without any non-performing loans. There’s a long term commitment to the country which supports our continued investments regardless of the bumps in the road.
Three new branches are being opened in India this year and we haven’t seen any of our peers making the same move. Domestic banks have an important role to play but our client base is different from theirs.
FA: How do you make the balance between priority lending and maintaining profitability and competitiveness?
Muhammad: JP Morgan is committed to fulfill its obligation towards priority sector lending. Over the years, we have leveraged our core strengths in foreign trade by issuing letters of credit, guarantees and foreign exchange products. In addition to supporting the export business locally, which is critical for the Indian economy, we believe these services play an important role in helping clients conduct cross-border trades, especially for SMEs.
Through our supply chain financing program, we also finance the suppliers of our key MNC clients, which in turn helps SMEs to gain access to bank credit at competitive rates.
Also, the RBI’s recent guideline on Priority Sector Lending Certificates will help banks without a sufficient network to service the targeted segment to meet their priority sector targets.
FA: What will be the impact of the departure of RBI governor Raghuram Rajan, and the recent appointment of Urjit Patel to the job?
Muhammad: The appointment of Dr. Urjit Patel is a strong signal of policy continuity. While serving as the deputy governor, Dr. Patel was also the chairman of the 'Expert Committee to Revise and Strengthen the Monetary Policy Framework'. The recommendations of that committee were accepted by the RBI and implemented.
Against this backdrop, we think the appointment clearly suggests the government is keen on monetary policy continuity, and further validates its move to institutionalise the new framework.
FA: How has Brexit impacted your clients’ plans and what advice are you giving them?
Muhammad: On that particular Friday when Brexit-induced tremors were felt in the global markets and FX trading activity quadrupled the normal daily volume, we were at the forefront assisting our clients, mitigating market volatility and addressing their immediate risk management needs.
We are now working with a lot of clients who are looking to navigate the challenges and explore opportunities that are associated with an economic backdrop of elevated uncertainty and possibly sluggish growth in the medium term.
The new environment requires companies to constantly reevaluate their corporate finance and risk management strategies, reassessing counterparty and hedging risks, reviewing their ability to access funding and planning for potential supply-chain disruptions.
FA: Between Asia’s two economic powerhouses, India and China, where are you investing more this year and why?
Muhammad: China and India are both key markets not only for JP Morgan but also for many of our clients globally. What’s been driving our strategy is our clients’ agenda.
Following their footprint, we’ve expanded our branch network in China from four to eight cities — Beijing, Shanghai, Tianjin, Guangzhou, Chengdu, Suzhou, Harbin and Shenzhen — in the past few years. We also made a strategic investment in the Postal Savings Bank of China last year. Now we are opening three new branches in India. The advances and deposits in our Indian branches have grown four times over the past six years.
These developments are against the current backdrop of some competitors focusing more on their home countries and retreating from the region.
FA: Has the expansion overseas of China’s financial institutions been an opportunity for JP Morgan in terms of providing them with services? Do you think this trend of geographic diversification by the sector will accelerate this year and next?
Muhammad: We are seeing an acceleration of Chinese financials expanding their networks overseas into places such as London, Dubai, and Indonesia, for example. The activity has broadened to non-bank sectors such as insurance, brokerage and asset management companies.
One of the main drivers is the government’s support of the 'Go abroad' and 'One Belt One Road' initiatives. The search for new growth abroad in order to offset the impact of a slowing economy onshore has been another driver. Our view is that geographic diversification will continue and Chinese financials will be at the forefront of it.
As a “bankers’ bank”, JP Morgan is a firm that has a dedicated financial institutions (FI) team in most of the main markets in Asia. This team follows our FI clients, helping them source opportunities, managing market risks, and facilitating their financing needs as they establish their presence in overseas local markets.
FA: How have restrictions on transferring money out of China impacted corporate treasurers and what have you done to help them continue to finance their businesses?
Muhammad: The Chinese regulators are making efforts in gradually liberalisng the system to facilitate cross-border fund flows. The cross-border cash pool regime and other initiatives being implemented in the Free Trade Zones in China are examples.
We are engaging our clients to provide them with tailor-made solutions. At the same time, we have active dialogues with the local regulators to ensure these solutions are in full compliance with the current regulatory framework. For example, we provide cash pooling and bilateral structured cross-border lending to those clients with cross-border financing needs.
We’ve also seen a shift of demand for more onshore financing, which is conducted by our Beijing-based locally incorporated bank.
FA: How has the anti-corruption campaign in China impacted your business?
Muhammad: Globally, we have a disciplined approach to our business and there’s a robust client selection process that relies on a vigorous know your client and anti-money laungering procedure. It applies to our business globally and in China.