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Tuesday, April 23, 2013

HSBC overhauls incentive structure for its sales staff

The Hong Kong and Shanghai Banking Corporation has overhauled incentive structure for its sales staff to prevent recurrence of misleading sales pitch to its customers and charges of aiding transactions that violate the law.

"We have changed the incentive structure beginning this year," Stuart P Milne, chief executive officer at HSBC India, said. "We now reward based on how many consultations they (staff) have with the customers. Did your customer increase the value of assets with you? These are the kind of things based on which we are incentivising."

This incentive structure revamp follows allegations of the lender aiding money laundering, and some of its staff misleading customers about investment options. The lender has faced such charges in other markets too.

"When you run as large a business as we do, you can expect a certain amount of wrong sales pitch," says Milne. "In India, we had no experience with black money. We have extremely strict controls on KYC, and this stuff is monitored carefully."

The bank, which has set its house in order after losses in retail and small business lending, faces tough time ahead with the new norms for lending to the priority sector.

Milne also said the new rule that foreign banks operating in the country must adhere to 40% priority lending within five years is not achievable or sensible. "The regulations are saying we have to go to 40% in five years while our balance sheets are doubling.... We don't think it is either sensible or achievable," Milne said here on Thursday.

According to the new Reserve Bank of India norms, foreign banks with more than 20 branches in India will have to channel 40% of their lending to priority sectors such as agriculture and small and medium businesses in five years.

"I don't think any of the Indian banks have been able to meet these targets fully after doing this for six decades. The large foreign banks are now mandated to do so starting April 1 in the next five years. That's going to be a massive challenge," Milne said.

He also said that HSBC is not keen to expand its branch network to enter small towns as it may not be viable. "We don't want to open branches in smaller cities. The economy is only growing at 5%. So for us, we can expand our footprint in India with our existing network," Milne said. "We have reasonable coverage in major cities. We need to make these branches work for us. Being in smaller cities is not particularly attractive."

HSBC has a network of 50 branches and has not set up any new branch in the past three years.

Unlike Indian banks that do business with the masses, foreign banks prefer to deal with the affluent and rich customers, which makes opening branches in rural centres unattractive.

"These (Indian) banks play across the customer spectrum, while we are much smaller, much more focused on international business. As an international bank, we are looking for finding customers where we can make a difference and where Indian banks cannot compete with us directly," Milne said.

The RBI caps the number of bank branches that all foreign banks can open annually at 14. The central bank is also encouraging foreign banks to open new branches in smaller towns to push the financial inclusion agenda, which is not going down well with most foreign banks.

"As a foreign bank, if we want to open branches in Bangalore and Hyderabad, the RBI will not accept those applications. They (Indian banks) can say I want these 10 branches in metros and, in return, we would open two in remote locations. They would accept it. We don't even have that say," Milne said.

While the RBI wants foreign banks to increase priority lending from 32% to 40% on the recommendations of a panel headed by former Union Bank of India CMD MV Nair, it wants foreign banks to match this over the next five years, starting April 1.

Source: Economictimes


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