Asia should chart its own path to become a driving force for global economy: HSBC India Chief

Thursday, 7 August 2014 00:19 - - {{hitsCtrl.values.hits}}

‘New world’ countries can help fill the gap in global economy
Says imperative to have financial inclusion
Developing countries should invest in technology to strengthen financial sector and promote trade

HSBC India Chairman and Director Asia Pacific Naina Lal Kidwai – Pic by Lasantha Kumara

A top professional from the Indian banking industry yesterday expressed it is imperative for Asia to “chart its own path” if it is to fulfil its aspirations in becoming the driving force of the global economy. HSBC India Chairman and Director Asia Pacific Naina Lal Kidwai while delivering her keynote during a session at the Sri Lanka Economic Summit 2014 noted that with the US and the EU still having some distance away from a full recovery, there is great expectation from other countries to fill in the gap to keep the global economic engines purring along. “To fill this gap is an opportunity for the developing and emerging nations in Asia. However, with the region having diverse demographic and equally diverse cultures, the ‘new world’ nations, that will follow the growth route of the advanced world, should chart their own path, grow in their own way and do things differently,” she said, during her address on the topic ‘Banking in a New World’. Noting that the establishment of the BRICS Bank is major step for the developing world, she said the excitement and confidence of the BRICS nations in filling the gap can be very much felt and its efforts are already showing progress. The BRICS Bank has multiple objectives such as facilitating infrastructure development, promoting the green economy and boosting cross-border trade amongst emerging countries, all which sends a strong signal to the world about a shift taking place in the global economy. “If five countries from different continents can form a BRICS Bank, then I think the idea of a SAARC Bank along the same lines could certainly be explored. It could aim to promote trade and business ties across the member countries and the region,” she expressed. However, despite the optimism there still remain challenges that are yet to be addressed before Asia prepares to take the lead in becoming a key contributor to the global economic growth. Previous experiences having shown that all high growth economies need a strong and large banking system, one which is able to provide the credit to growing corporates and its people, poor penetration of the banking system is an issue that many new world economies are facing. Sharing the Indian story in this regard, Kidwai pointed out that although that country has a thriving economy, only 47% of its population has a formal bank account. Of the 611 districts, 375 in India are classified as ‘under-banked regions’ and this is despite the presence of about 155 commercial banks running more than 115,000 branches and offices. “Mere introduction of newer banks might not be a solution to getting more people in the organised banking sector if it is not supported by enabling technologies and payment systems that are cost effective. With our nations having high mobile penetration, it is a no-brainer that mobiles and mobile banking technology will be an effective tool to reach out to the vast multitudes. There are a number of countries like India and Sri Lanka that can learn from the M-Pesa model so successfully used in Kenya and other parts of Africa, as indeed India is attempting to do,” said Kidwai. To promote financial inclusion, the Reserve Bank of India (RBI) introduced last week the licensing of Differentiated or Restricted banks for new banks to improve penetration. The plan is to develop only payment specialised banks or banks where telecom companies, retail chains and PPI issuers are expected to apply. The RBI also recently published new guidelines on licensing of small banks for provisions of savings vehicles to underserved populations and for the supply of credit where it is likely applications will be received from non-banking finance companies (NBFCs), microfinance institutions and local area banks. The paid up capital requirement of these new institutions is $ 17 million. Kidwai opined that when talking about larger banks it is imperative to note that origins of the largest of banks in the world lie in trade. “To promote trade, global connectivity is important to build. We need to invest heavily in technology to improve this aspect. Domestic banks could either develop a stronger regional presence on their own, which will take time and investment, or develop partnerships or relationships with banks in the trade partner countries, in order to support local businesses aiming to grow outside the country and support trade,” she advised. Emphasising on the opportunities Sri Lanka can leverage using the ‘India connect’, Kidwai said: “As immediate neighbours, Sri Lanka and India certainly have roles to play in each other’s growth as they indeed have played, over thousands of years of history and mythology through trade and culture, and we look towards newer avenues.”