Foreign banks and mutual funds moving out of India - what went wrong?

Written by Ketan Warikoo || March 2016

JP Morgan recently joined a long list of foreign Financial Institutions (FIs) that entered India with a lot of enthusiasm only to exit in a few years. The last 5 years have seen over 9 exits from asset management companies (AMCs) alone. India was the largest promise for some of these businesses outside of their playgrounds in the western hemisphere. So what went wrong?

Three possible reasons provide pointers:

  • Dollar mindset in a rupee nation: MNC banks and AMCs brought in expatriates and NRIs (Non Resident Indians) working for them in other geographies in the hope that they will be able to help them bridge the nuances of operating in India. These people came at a cost and thanks to them even local talent became expensive all too soon. Fat pay packages in the FS sector, even to this day, do not tie in with the slender margins that are to be made on products and services from some of the world’s most demanding clients.
  • Regulatory crutches gone missing: FIs perform well in markets where they receive support from regulators. The RBI was never a friend, nor was SEBI. The requirements around licensing and subsidiary setup are taxing and cumbersome that have resulted in operational challenges around market penetration for MNC banks. Issues with convertibility, entry loads, net asset requirements etc. have been stumbling blocks for MNC fund houses.
  • Local reigning over global: While India recorded the fastest growth of HNIs in the world in the past financial year, there is still widespread cultural and behavioural resistance to paying advisory fees for services such as wealth management. Additionally, HNIs in India prefer to invest in tangible assets such as real estate and gold rather than financial instruments. MNC Fis struggled to meet the expectations of global masters while managing their very local clients.

Even so, it remains to be seen whether the spurt in exits is only due to issues specific to the emerging Indian market or from FIs trying to protect their under-attack bottom lines by falling back to home turf.

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