Our custodial services model is unique

BNP Paribas Securities Services (BP2S), a wholly-owned subsidiary of the BNP Paribas Group, recently launched its custodial and clearing services in India.

Being a new entrant in what seems like a crowded market doesn't faze its CEO, Mr Patrick Colle.

He is confident that his company's parentage, its business model, and the strong position in the market worldwide will make it a leader domestically too.

He points to the stable revenue stream from providing services and solutions to buy-side and sell-side financial institutions and issuers, as an important differentiator. BP2S has a local presence across 32 countries and global coverage of over 100 markets.

The custodial market in India is estimated at about €500 billion (about Rs 32 lakh crore).

With €4,641 billion of assets under custody, €771 billion assets under administration and over 6,000 funds administered as on December 31, 2010, BP2S is among the top five global providers of securities services.

Mr Colle declined to provide any numbers on the amount invested so far or the target numbers the company hopes to achieve in this market. But he does say that “rarely have we invested so much — not just in terms of money, but in placing our bets on the potential of any single market — as we have done in India.”

Excerpts from the interview:

There are about 18 players in the custodial business market in India. What does BNP offer for a client in this crowded market?

We are a major player in this business worldwide. We are No. 5 globally . We have a model in custodial services that is unique — we are both a global custodian and a leading local custodian. We are a local custodian in 32 markets, and a global one in 102 markets.

This is particularly relevant in these post-crisis times — when you are a custodian for investors anywhere in the world. It means you control the assets from A to Z and are in a strong position vis-à-vis your clients, because you offer protection across the whole chain rather than relying on a third party in different local markets.

New regulations that are coming up in Europe in two years' time will probably increase the responsibility of the custodian — and that is why it helps if you have a strong edge. The strength of the Indian economy and the economic dynamics here is of great attraction to us.

We have set up a global processing hub here that will handle our transactions not only for the Asia-Pacific region but also our European operations.

We have about 400 people working here since the centre started nearly two years ago. We believe we'll hire another 500 people in the next year or so. This will create a lot of opportunity for the local talent here. Chennai has a lot of good talent in accounting and IT.

We have formed a joint venture with Sundaram group to focus on domestic fund services. We see this as a medium to long term play.

The market is still in a formative stage, but is growing rapidly. It will take some time for it to come to size. We will bring our fund administration and custodial capabilities as well as other strengths of the BNP group.

The custodial business seems to be almost commoditised at one level. Where do you make a difference?

Yes, it is true that there is a certain element of commoditisation in this business. But our business model enables us to make a difference — we deliver global solutions locally.

We team up with local partners who share our values and are long-term players and offer good understanding of the local markets as well as bring a global perspective.

We are also well balanced — we have almost equal number of clients on both buy-side and sell-side. That makes our revenues a lot more stable than those of our competitors and allows us to continue investing in the business.

How are the margins in this business? Is it capital intensive?

The business is obviously profitable. The margins are not huge. If you look at the cost-to-income ratio it is between 70 per cent and 90 per cent — and for some players it is even higher.

It is important to understand that there are other business dynamics that make this business very important to our portfolio of activities.

It is a business that provides a stable revenue stream, a lot of liquidity, and consumes very little capital.

In the post-crisis, Basel-3 environment, this business becomes strategically even more important for a bank like ours. And, worldwide, there are not that many businesses where the total pie is growing. That's why it is an attractive business.

What are your biggest challenges in the next two years?

Our biggest challenge in the next two years will be to attract the right kind of talent. The next will be to provide them the right kind of training so that they are able to support our ambition of developing this global hub to service our operations worldwide.

We will also need to educate our clients on the value we bring, being a relatively new entrant.

We'll need to engage with the regulators on some of the restrictions that are there and, hopefully, we will be able to do that and bring our global best practices.

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