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China’s ICBC Opens Account in India

World’s largest lender in terms of market cap is the first Chinese bank to open a branch in India

Industrial and Commercial Bank of China, or ICBC — the world’s biggest lender by market value, has set up business in India, which could potentially open up the market for firms from Beijing, boost investment in infrastructure sectors and foster the growth of a rupee-yuan market. 

The bank will be the first of four Chinese lenders to start operations in India. India and China had signed a memorandum of understanding, or MoU, during Chinese premier Wen Jiabao’s visit, which will facilitate Chinese banks to open branches in India. “We have received a commercial banking licence. In the first stage, we would like to focus on wholesale banking services and products to Chinese enterprises and related parties,” said Sun Xiang, chief executive officer of ICBC, Mumbai branch. The bank, which is now expanding in Europe and other countries, will gradually offer personal banking to local customers and private banking services.

Four Indian banks — SBI, Bank of Baroda, Bank of India and Canara Bank — have a branch each in China. Chinese banks had sought regulatory approval to start commercial operations on grounds of reciprocity.

“ICBC would facilitate the investment of Chinese companies in India’s power, telecom and infrastructure sectors. We would also help companies raise yuan-denominated bonds if there is a demand,” said Yang Kaisheng, president of ICBC. “Corporates can get 3-5 funds by issuing dim sum bonds at an interest cost in the range of 1-3%. A similar issue in India could cost firms an interest rate of 9-10%,” said a treasury head with a private sector bank.

In 2010, China emerged as India’s biggest trade partner with a trade volume of $61.7 billion, which is nearly 20 times of what it was almost 10 years ago, while India is also China’s biggest trade partner in South Asia. ICBC has accelerated its overseas expansion plans. At the end of June 2011, the bank’s overseas assets stood at $140 billion, which account for 4% of its total assets.

“We are still a new comer in the international market when compared to other global players. In future we would like to see the share of international assets go up to 10%,” said Kaisheng. “This would be difficult as our domestic assets are growing faster,” he said.

On potential investments in India, Kaisheng said it would hinge on two factors — the bank’s capital adequacy and the proportion of funds allocated by the head office. “It is true that we operate as a branch instead of a subsidiary. However, as and when regulations demand, we would be open to converting into a wholly-owned subsidiary,” he added.


Reliance Retail to Rejig Top Deck Ahead of FDI

Ex-Walmart China execs Cissell & Gray set to join as CEO & COO in second reshuffle in two years

The retail subsidiary of India’s largest private company is set for a top-level churn for the second time in two years as the country gears up to open its food and grocery retail market to foreign companies. Reliance Retail has named Rob Cissell, former chief operating officer of Walmart China, as CEO. Shawn Gray, vice-president in-charge of store operations of the same company, will join the Mukesh Ambani firm as COO, the company said in an email to its top executives on Saturday.

The two Walmart China executives will join in September, according to the email whose contents were described to ET by people familiar with it. They spoke on condition of anonymity because the changes had not been publicly announced.

The Reliance Retail spokesperson declined comment.

Gwyn Sundhagul, incumbent CEO of the retail arm who was hired from the Thailand arm of British retailer Tesco early last year, will move to Reliance Industries’ consumer businesses comprising insurance and telecom. “RIL is sharpening its focus on consumer businesses—retail, telecom and insurance—because it wants to balance its portfolio and derisk its core business. You will see many senior-level hires across these three businesses as they are top priority for the company now,” a company insider said, requesting not to be named. He said RIL has no plans to sell out or form a joint venture with a foreign partner if food and grocery retail is opened to foreign companies.

“Both digital and physical retail are priorities for us,” the company executive said. Large-scale expansion will begin next fiscal onwards.

Cissell and Gray have resigned from Walmart China over the last three months. The two were part of the top team of Walmart’s China arm that has around 333 outlets, generating $7.5 billion revenues, or 1.8% of the Bentonville, Arkansas-based company’s total sales of $420 billion last year. Cissell was responsible for store operations, merchandising, merchandise development, marketing and supply chain for all retail and Sam’s Club formats at Walmart China. Before going to China, Cissell held senior positions in Europe with 10 years of senior executive experience in both Kingfisher Plc and Argos. He was also the chief executive of B&Q Plc and managing director of Comet Group Plc. Rocky Ride for Retail Sector

Gray was with Walmart for over 19 years, having spent nearly 13 years in China where he led the team that opened and integrated hypermarkets.

Launched in 2006, Reliance Retail has had its share of ups and downs. It runs about 1,000 stores across formats in 86 cities. It has a line of specialty stores such as Trends, Timeout, Digital, Footprints and Jewels. Its other retail chains include joint ventures with Marks & Spencer, Vision Express and Hamleys.

Like most other organised retailers, Reliance Retail has faced political opposition to its expansion.

The Uttar Pradesh government ordered closure of Reliance Retail operations in 2007 while it was also forced to shut several of its grocery stores (Reliance Fresh) in Kolkata and Jharkhand due to political agitation against large organised retailers perceived as threats to small kirana shops.

Besides, Reliance Retail was hit hard during the economic slowdown in the autumn of 2008 following the global recession. Retailers, including Reliance Retail and Aditya Birla Retail, had expanded rapidly, opening many stores without putting the vital supplies in place. But when the economy slowed, these companies shut hundreds of stores and sent home thousands of employees to stay afloat. Subhiksha, once the largest retail chain in the country, went bankrupt.

Reliance Retail went through a series of restructuring, which ended in a complete clampdown on expansion and the appointment of a new management team from Thailand entrusted with the task of consolidating operations.

CEO Sundhagul led a team of 25 executives, mostly from Tesco’s Thailand arm who joined Reliance Retail two years ago, to streamline operations in value retail formats—Reliance Super, Reliance Fresh and Reliance Hyper—that sell goods such as soaps, biscuits and vegetables and account for nearly 70% of the total sales of Reliance Retail.

Earlier, Sundhagul had helped Tesco Lotus secure market share in Thailand, which once resembled India’s retail market with its freshly-minted organised players competing with a well-entrenched network of kirana shops. “We have cleaned up the company and put processes in place. It is time for speed and execution now,” a company insider said, confirming the two new appointments.


In the recent past, Reliance Industries has unveiled major initiatives in telecom and retail.

Last year, Reliance Industries picked up a majority stake in Infotel Broadband Services, originally owned by Mahendra Nahata of Himachal Futuristics, for close to . 4,800 crore, to offer high-speed data on mobiles and computers.

It is also acquiring Bharti Enterprises’ stakes in two insurance joint ventures with France’s AXA Group to move beyond its core energy business. In an interview to ET in May, Reliance Industries Chairman Mukesh Ambani had described energy and consumer sectors as the two pillars of his growth strategy. The consumer initiative has major parts, telecom and financial services, he had said.

At the 37th annual general meeting of Reliance Industries in June, Ambani had outlined ambitious plans for retail. “We are positioning Reliance Retail to be the undisputed leader in retailing in India,” he said.

Asserting that the company has already become the largest food retailer in the country, Ambani said all the specialty formats of the company would attain top positions in their respective segments in next two years.

Reliance Retail reported revenues of close to $1 billion (around . 4,500 crore) for the year ended March ’11.

The conglomerate plans to invest aggressively in its retail business and will launch cash & carry, or wholesale outlets, Ambani said. The company had exited cash & carry business in early 2009 to conserve cash in a deteriorating market.

India’s cash & carry market has attracted global retail behemoths such as Walmart, Tesco and Metro. The global giants see it as an opportunity to enter India where foreign direct investment is barred in direct-to-consumer retail.

Ambani also said Reliance Retail already has the largest portfolio in terms of number of formats and 25 lakh customers were shopping at the company’s various stores every week.

The company is also focusing on large formats, with 13 hypermarkets already operational and another 20 under different stages of construction. “As India grows rapidly, transformation is at the top of the Reliance agenda; a talent transformation that will endow Reliance with new competencies in new business domains and attract best talent in India and abroad,” Ambani had said.

Reliance Retail is known to have attracted talent through huge compensation packets in the past, thus creating exit barriers for executives.

In 2006, the company reportedly roped in top performers such as Gunender Kapoor and the late Raghu Pillai at pay packages as high as . 3-4.5 crore, the highest in the industry then. Shanghai-based Marie Jiang, retail analyst with Pacific Epoch, had reportedly said the departures of Cissell and Gray could cause some concern to Walmart China.

“The psychological impact [of the departure of the executives] is seen to be larger than the material as employees of its China operation may see an unstable top management team,” she said. Walmart International grew 11.5% in the first quarter of this year, key growth drivers being markets such as China, Chile and Mexico, the company said in a statement in May.

Walmart entered China in 1996 and now has 333 stores, including 104 stores operated by Trust-Mart, in which it bought a 35% stake in 2007. The retail giant competes with France’s Carrefour and the UK’s Tesco in China.

Health insurance needs PROPER DIAGNOSIS

IN ORDER TO ENSURE UNIVERSAL access to quality healthcare, the government has been making efforts for increasing health insurance penetration. The Insurance Regulatory and Development Authority (IRDA) recently relaxed norms for health insurance companies and reduced the reserve requirements. The IRDA has already licensed many third party administrators (TPAs) for faster and easier claim settlements and for providing cashless hospitalisation facility. Further, the FDI cap in the insurance sector is also set to be increased from 26% to 49% through the second insurance bill.

Insurers are looking forward to tap the vast and fast-growing Indian healthcare market. In fact, many insurance companies have begun to offer health insurance. However, the path ahead is not so smooth for health insurers in a country like India. The health insurance industry in India at present is a loss-making one. Though the private sector health insurance is growing at 40% annually, the level of coverage is still very low and has not penetrated rural and semi-urban areas significantly.

One of the biggest challenges — and an opportunity too — for insurance companies is to convert the huge out-of-pocket health spending (72% of the total health expenditure and 98% of the total private health expenditure) into a formal risk pooling mechanism which people have never been exposed to before. Such a conversion process is constrained due to several factors, among them the absence of reliable morbidity and health expenditure data. Also important, from a demand-side perspective, is the low level of insurance awareness, poor trust in insurance companies over reimbursement, and absence of regular and adequate income to make regular premium payment.

The process also involves tackling two important forms of market failures that are making insurers reluctant to sell health insurance — overutilisation of healthcare due to insurance coverage, and mostly the relatively unhealthy people buying insurance. One may wonder if these are not the common problems faced by insurers all over the world. However, the magnitude of these problems may be severe in India.

Perhaps, both the insured clients and healthcare providers have an incentive for over-utilisation and overprovision of healthcare, adding to the bill of insurance company. Further, at present, the healthcare insurance schemes in India are mainly limited to hospitalisation, forcing the insured persons to be admitted to hospitals even for those illness requiring only out-patient care. One solution can be including the out-patient treatment as well in the insurance package, but the resulting premium will not be affordable for majority of the Indians.

On the supply side, there are hardly any pricing criteria for healthcare services and no benchmark as to how much care is required by patients for each category of illness. Further, healthcare cost inflation is sure to rise further, All these will force insurance company to increase the premium, thus making health insurance a costlier proposition.

One possible way of controlling the over-utilisation of healthcare due to insurance coverage could be the use of co-insurance and deductibles so that insured clients also have to bear a part of his total incurred health expenditure. But this will be very hard to introduce as already the present insurance schemes cover only a part of the health expenditure and, therefore, any attempt to increase the out-of-pocket healthcare burden of insured clients would make health insurance a less attractive health-financing strategy.

In India, a majority of those buying insurance do it for investment purposes and not as an insurance product. But the health insurance schemes are without the saving component (being purely of risk pooling). This could dissuade many from getting insured. In such a situation, it is obvious that only those likely to require healthcare are interested in buying health insurance.

It is time insurance companies applied appropriate and innovative marketing strategies to overcome all these hurdles by taking the Indian reality into account.

SUKUMAR VELLAKKAL, is fellow at ICRIER, New Delhi