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September 13, 2011

Profits elude bankers to the rich in booming India

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September 13, 2011

MUMBAI: Ajay Piramal is just the sort of big fish every Indian private banker would love to land.
With businesses from healthcare to glass and property, the 56-year old Piramal has a net worth of $1.4 billion, according to Forbes, good for 39th on its India rich list. The problem, at least for the swelling ranks of wealth managers in India, is that Piramal doesn’t need them, putting his millions instead in his own companies and real estate ventures.
“These are only two areas I invest in, and therefore we don’t need any advisor,” said Piramal, who is approached by private bankers “all the time”. India may be minting millionaires, but that is failing to translate to profits for the banks that have set up teams of well-dressed, well-paid bankers to help manage those riches.
A narrow product range, rising competition, falling advisory fees and billions of dollars in wealth hidden from tax officials has stifled profits for private banks, which have aggressively ramped up operations in India. At the same time, expenses mostly salaries are growing by as much as 20 percent a year, some in the industry say, meaning many private banks must absorb potentially heavy running costs for years before they are profitable.
The industry’s difficulties in India come as more established wealth management centres in Hong Kong, Singapore and elsewhere are buffeted by poor markets. Profit margin pressure on the sector that serves the wealthy is “partly driven by a plain vanilla product platform available for clients,” said Atul Singh, head of global wealth and investment management for India at Bank of America Merrill Lynch, among the biggest players in the country. The challenge is made greater by poor market performance, with Indian shares sliding about 17 percent this year. A spate of scandals embroiling the country’s business and political elite has also soured sentiment among the rich.
The tough conditions are exacting a toll, even as

many banks such as Morgan Stanley, Royal Bank of Scotland, Barclays and Bank of America Merrill Lynch continue to add staff, with an eye to the long-term potential of the fast-growing economy.

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