UAE’s Mashreq Bank has had a presence in India since the 1980s. After a few quiet decades serving the overseas trade finance needs of Indian corporates, five years ago, the bank decided to shift gears and expanded its team and capabilities to serve Indian conglomerates' growing needs.
In an interaction with Moneycontrol, Tarek El Nahas, Senior Executive Vice President, and Group Head of International Banking, Mashreq Bank, said that India is now the bank's biggest market outside its home base of UAE, and comprises 25 percent of its international corporate banking assets. The bank is also exploring new initiatives such as setting up a presence in GIFT City to serve Indian clients, he told Moneycontrol.
Q. Can you describe Mashreq’s journey in India over the past four decades and how it has evolved, particularly in the last few years?
A. Mashreq has had a significant presence in India since 1980, and developed a deep understanding of the country over the years. However, our strategic direction underwent a notable shift approximately five years ago. We made a deliberate choice to intensify our focus on corporate banking, as we continue growing our financial institutions franchise. Previously, we primarily facilitated Indian exporters, aiding them in confirming export LCs (letter of credit) and discounting LCs — a straightforward, albeit essential, aspect of our operations.
Recognising the growing potential of the Indian market and armed with a comprehensive banking license, we committed to a more robust engagement with our corporate clients. This shift catalysed the recruitment of top-tier talent and consequently, within a remarkably short period, by 2023, India emerged as our largest market for funded assets, second only to the UAE, demonstrating the immense growth opportunities within the Indian market.
Q. Can you provide some insight into Mashreq’s loan book in India? Can you give us a break-up of the loan book?
A. India comprises about 25 percent of the bank's international corporate banking assets. The corporate side is perhaps the more significant aspect of our operations. Given the nature of our business model and the strategies tailored for the Indian market, much of our focus revolves around trade finance, structured trade finance, and long-term capital solutions for our clients.
This entails financing multi-year export or import contracts using structured methodologies, complete with clear offtake agreements. We've been highly engaged in this realm, along with long-term project finance for brownfield expansions and sustainability-linked transactions. We've committed to facilitating $30 billion of sustainability financing within our network by 2030, aligning with broader sustainability initiatives championed by the Central Bank of the UAE.
Additionally, we've ventured into debt capital market transactions, particularly when our Indian clients seek liquidity from the GCC (Gulf Cooperation Council) region. Acquisition financing is another niche we've carved, often collaborating with major global private equity funds acquiring local businesses. Simultaneously, there's a concerted effort to bolster our INR book, capitalising on the stable interest rates and controlled inflation prevalent in the Indian market. This entails devising a comprehensive, long-term funding strategy encompassing market borrowings, capital investment, and CD (certificate of deposit) programmes to meet the escalating demand for INR financing.
On the financial institutions front, our involvement has evolved from merely confirming foreign bank LCs for local corporates, to direct engagement with Indian banks. This includes providing foreign currency funding leveraging our rating and extending direct funding to Indian banks, tapping into the liquidity available in the GCC. Currently, our business is two-thirds corporates and one-third financial institutions.
Q. How do you plan to grow your Iending operations in India?
A. Our focus primarily lies in serving large, multinational Indian corporations. How do we aim to achieve this? Firstly, by facilitating access to the abundant liquidity in the GCC region. The GCC's robust liquidity, buoyed by factors such as increased oil prices and government reforms, presents a deep and diverse investment pool. Furthermore, with India actively engaging in free trade agreements with the GCC, the interest in investing in India, from this region is increasing. We aim to serve as a conduit, channelling this liquidity to Indian corporates.
Secondly, leveraging our extensive global network, we aspire to support Indian corporations as they expand internationally. Our strategic location in Dubai, a burgeoning hub for global commerce, positions us advantageously. As evidenced by recent client discussions, the allure of Africa as a growth frontier for Indian businesses is palpable, which is already witnessing increased Indian corporate investment. We stand ready to facilitate their participation in this unfolding narrative with our presence in and deep understanding of key African markets, which enables us to provide tailored assistance to Indian corporates venturing into these territories.
Beyond Africa, our network extends to Asia, Europe, and north America, encompassing pivotal trading hubs like Hong Kong and Singapore, as well as financial centres like New York and London. In these locations, we facilitate Indian investments, providing financial solutions tailored to their unique requirements.
Q. What investments are you making in the Indian business?
A. With the strategic transformation underway, several crucial elements must accompany it. Firstly, substantial fresh capital injections have been made into our Indian branch, amounting to over $125 million in recent years. This investment underscores our commitment to fuelling growth and signifies our readiness to inject further capital as the business expands.
We've bolstered our product offerings and infrastructure, including a comprehensive re-design of our core banking and treasury systems, initiated three years ago. This ongoing investment extends to transaction banking capabilities, with a major project at the head office level slated for completion in early 2025, promising state-of-the-art solutions.
In tandem with capability enhancement, team expansion has been significant. From 20-25 members a couple of years ago, our team has swelled to 47, with plans to exceed 55 by year-end.
Furthermore, decision-making regarding physical and product expansion rests with the local team, which has diligently expanded the product suite, leveraging our RBI license for onshore capabilities. A clear commitment from our CEO ensures that the team receives unwavering support in terms of resources and infrastructure.
Exploring opportunities beyond our current footprint is also underway. This includes potential presence in locations like Gift City, and geographic expansion to better serve our clientele.
Q. What are some key takeaways from your recent client meetings in India?
A. I find it fascinating how unique the investment landscape is here compared to many other countries. While elsewhere, clients often speak of investing for international growth, here in India, the focus is predominantly on heavy investment for the domestic market. The sheer size and demand of the domestic market sets it apart from others. Over the past decade, India has undergone significant reform, making it more investor-friendly. Moreover, there has been a substantial government-led infrastructure investment drive, crucial for efficient functioning.
India has historically excelled as a service economy, both locally and globally. However, there's a palpable shift towards manufacturing. The narrative of India emerging as a manufacturing hub, akin to China's transformation, is gaining traction. This shift is marked by increased investment in capital expenditure and capacity enhancement. The coupling of services with manufacturing strengthens India's economic prowess.
The sentiment surrounding India is overwhelmingly positive, both domestically and internationally. It's hailed as the bright spot of Asia, with immense potential to become a global hub. Foreign investment is pouring in, with global private equity firms actively engaged in acquisition financing. Additionally, multinationals are eyeing India as a favourable destination for setting up operations.
Q. What are Mashreq’s future plans for India?
A. We have internal budgets, and they are quite detailed. Our focus, especially at the group level where I oversee investments, is on business growth targets rather than immediate profitability. We understand the need for investment, so our targets prioritise expansion.
While I won't delve into specific numbers, I'm optimistic that our team will surpass expectations, as they have in previous years. Our aim is for double-digit growth annually. To put this in perspective, our compound annual growth rate (CAGR) in the Indian wholesale banking sector has been around 20-25 percent over the past few years. There's no reason why we can't maintain or exceed this going forward, with the continued collective growth ambition of both the firm and the team on the ground.
Q. Which sectors are you focusing on to drive growth?
A. While we have deep expertise in certain sectors like commodities and energy due to our home market dynamics, we’re sector-agnostic as a firm and we've executed deals across various industries in India. From energy and commodities to mining, power, pharmaceuticals, and retail, our portfolio is diverse.
Looking ahead, we anticipate renewable energy will emerge as a significant theme in India, and we're exploring ways to participate in this sector. Additionally, while we haven't been actively involved in real estate in India, we recognise its potential and are considering select opportunities. Leveraging our strong presence in the real estate market back home, we aim to develop models that suit the Indian market.
Moreover, we're actively facilitating investments from our clients based in the GCC countries, into India. Many prominent privately-owned GCC companies promoted by persons of Indian origin are expanding their operations in India, and we're facilitating their entry into the market. This inbound investment often involves INR-based funding due to operational requirements in India, reflecting the growing demand for local currency financing.
Q. Could you elaborate on Mashreq’s plans regarding its presence in GIFT City?
A. The prospect of establishing a presence in Gift City is gaining traction among our clients, as we observe other international banks making similar moves. The potential for increased tax efficiency in fundraising and financing is one aspect that draws interest from our clientele. While the decision to proceed might seem straightforward given these factors, we're taking a more comprehensive approach.
We are examining the broader implications for our offshore (loan) booking units, given the dynamism in the global tax regime. Gift City's role could extend beyond serving Indian corporates, prompting us to conduct a thorough analysis. This entails evaluating the efficiency of Gift City to supplement and augment our current offshore booking infrastructure in the UAE or Bahrain. Understanding how these options stack up against each other is integral to our decision-making process.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
