In Focus: Madan Menon, RBS

RBS’ Head of International Banking shares his thoughts with Vipanchi on the global economy, and how SMEs affiliated to the Chamber can survive in the new economic environment.

By Vipanchi Dinavahi

What is your view on the global economy today?
Let me set some context. Last year was substantially focused on crisis management and clearly the eurozone was at the centre of that, ranging from Greece and challenges lapping on Italy’s shores to issues around the Spanish banking system. This year, despite some turbulence in the global economy, apart from the stand-off between lawmakers and US President Obama in the last few months, we have seen some points of calm. Therefore, I see an element of growing, but with cautious optimism.
On a macro level, how is this cautious optimism being translated into the global economy?
In the context of the US, again notwithstanding the last few months, there is an element of heightened momentum where these green shoots are being a little more sustainable perhaps compared to last year. If you look at the UK, there are some green shoots with respect to recovery. I think it’s about 2% this year versus zero percent last year. The appropriate measures taken are clearly showing an upward trend. The eurozone is growing again, even if it is at a meagre rate.
In Asia, I think the giant obviously is China, and we remain optimistic on its outlook. Some of the other countries have lost momentum, including my home country, India, whose growth rates are sliding dramatically. So, the outlook for Asian economies, as well as for the global one, is dependent to a high degree on China.
I do see an element of purposefulness and policy clarity with respect to India and China to ensure both these economies continue to fuel economic growth as they did in previous years, but with perhaps a lesser momentum this year. That leaves a big picture context. Will this view be universally embraced? I would argue perhaps not.
Your optimism is largely China-centric. Why is this so?
While statistics will always play themselves out, I am optimistic on China’s continued momentum in terms of growth, whether that number is 7.5%, 7% or lower.
Does China have certain elements that need to be remedied and relooked at? Undoubtedly. But, they are actually taking action to change course. For a long time their strategy had been export-driven, with a primary focus to drive Chinese exports, capture volume and capture strategic market share in a range of products across the world. However, they are now recalibrating their pattern of growth to ensure that a larger focus is on
domestic consumption, which in my view is more sustainable.
There are reports that position ASEAN in a better light than China. What are your comments?
The size and nature of opportunities in China is different from what Indonesia, Malaysia, the Philippines and others can offer. The key is finding how each economy can complement the other, instead of looking at it from a zero-sum perspective on investment dollars flowing into these countries versus going to China. I have a little more cautiously optimistic view on China on a longer term and that’s also perhaps my generic view, in part because it seems China is moving up the value chain more decisively.
Where does India stand in the bigger picture?
With India, the key issues are quite clear. They are principally about consistent focus in terms of policy  implementation. Is there an immediate element to some challenges? Absolutely. But the more important 
challenges and perspectives are more longer term. Indeed, the currency volatility that grabbed the headlines one to two months ago has been far more subdued in the last few weeks.
Overall, we need to view this with three or four views, and each with a particular lens.
An economist, for example, would focus on a quarterly view, looking at where GDP growth or the fiscal deficit is heading and making a strategic call. The markets business will focus on whether it is in forex, equities, fixed income or commodities, and will take a view on price, which is a little shorter term. The ratings industry will take
a holistic view and add an assessment of policies and risks, for example, and then take a view on the outlook. A fourth lens is that of a businessman or a company considering both day-to-day aspects and strategic plans, and viewing the whole thing through a long-term perspective.Combining these views, I remain constructive on India.
Personally, I am absolutely clear that I need to be aware of, sensitive to and manage issues that are defined as either issues or risks and find ways to mitigate those. But fundamentally, that does not change one’s own investment appetite in terms of a particular country and, in this case, with India being a robust destination point.
So, in my mind, the opportunity in India remains robust in the long term. I have no doubt at all.
Is this why RBS sold a substantial part of retail and commercial businesses to Ratnakar Bank in India?
The sale of this business is a culmination of RBS’s strategic review that was announced back in 2009. The bank’s view on our products and clients was to be focused and more relevant to what we offer to our clients. We decided to sell off our retail and commercial businesses, which was a substantial part of the RBS business, to ANZ in Asia Pacific and to HSBC in India. The sale to HSBC did not take place for a variety of reasons. Today, the decision to sell to Ratnakar Bank is the culmination of the process announced four-and-a-half years ago.
This will mark the end of a process and, more importantly, focuses our commitment to the areas where we have the greatest opportunity for growth. We have found an outstanding buyer in Ratnakar Bank and, following the sale, we will be able to concentrate 100% on what we set out to do.
Going back to the global view, who is investing what and where?
There are two or three lenses here we can address that from. The first lens is where in Asia are companies from the UK, US and EMEA investing in. The second is in which industries or areas are they investing in. The third is intra-Asia  investment. Ultimately, everything has to be viewed through the lens of the principal investor.
All of our clients, especially those that are based in the UK and have Asian growth aspirations, continue to be
interested in the opportunities in Asia. The sectors and verticals of interest may differ but the direction is very clear. Large Singaporean, Australian, Indian or Chinese companies, for example, are investing in the US, UK or EMEA across a range of sectors.
However, most importantly, they are playing to their own core competence and a desire to be in markets that give them an element of dominance, geographic diversity and opportunities for growth.
We also need to draw a distinction around the intra-Asia trade flow versus investment and capital flows.
The volumes in investment flows have declined this year compared to last year, but we are still seeing investment flows intra-Asia. For example, the heightened focus in energy assets diminished in the
intra-Asia context.
Ultimately, all of this reflects the macro global economic performance which, as we know, is subdued.
How is the global investment and trade between UK and other countries looking?
Trade and investment flows between UK and Asia have remained positive. Perhaps over the past three to five
years, aspirations have been pared down because of modest economic environment. However, I fundamentally believe that we should look through the volatility and take a long-term view.
If you look through the capital lens, what is interesting is that, three years ago, companies outside the equity markets raised their capital primarily in the dollar, sterling and euro markets through loans and bonds. They did less of that in Asian currencies  outside of their domestic markets. So, increasingly, you will see a trend
where companies will tap liquidity either in markets where they have a strategic choice, for example, in China where they have significant businesses investments, or in Singapore, which is a more conducive
market as a vibrant market place.
Previously, there were not that many non-Singaporean issuers who have tapped the Singapore dollar (SGD) bond market. However, we have seen more of that in the last two years. This year, we saw the bond markets fall away two to three months ago where volumes have come off. We have continued to provide access to new investor liquidity via the SGD market to bond issuers.
Singapore and the EU have signed the EU-Singapore FTA (EUSFTA). How will this help the Singaporean
Some of the statistics I’ve seen indicates that Singapore is the second largest Asian investor in the EU after Japan. The trade in goods and services between the EU and Singapore was around €74 billion in 2011, which, to put it in context, accounts for one-third of the aggregate EU-ASEAN bilateral trade. This is a staggering statistic, and is an incredible achievement for Singapore.
More importantly, it highlights the strength and potential of this agreement. What I find interesting about this EUSFTA is ASEAN accumulation concept, where Singapore-based companies or manufacturers get the benefit of tariff concessions when exports are made from Singapore that include goods sourced outside of Singapore as well. This will encourage companies outside of Singapore to naturally think of Singapore as a regional
hub, to send raw materials to Singapore for processing before it is being shipped globally. As a direct result, it also has a complete focus on employment that Singapore will hopefully generate.
Looking at it from a productivity, employment and investment view, it is materially uplifting for Singapore and EU. This will also help British companies here to tap this opportunity to play a more meaningful role,  particularly in terms of working with Singapore and the UK and the EU, to be a critical intermediary in terms
of trade, capital and investment flow. 
At the Chamber, we have several SMEs trying to survive the competitive market across various sectors. What
suggestions do you have for them?
I believe there are a few common threads attributing to the success of any company, which I hope to articulate sensibly. The first is their purposefulness and ambition; the second is their competitor landscape and
environment; the third is the importance of considering the differentiation of their service and product; and finally, access to a strong banking partner that believes in their business as much they do and are willing
to take a view beyond the immediacy of an economic statistic. There is a constant need to evolve and maintain a good relationship with your consumer and your client. This relationship makes a business sustainable. It is also important to maintain transparency. This will produce rewards in the long haul.
I have great admiration and respect for entrepreneurs and SME-owners. The courage it takes to persevere and maintain determination to see a project through is incredible. There are some brilliant ideas out there, and I am confident that there are more and more opportunities for SMEs to grow.
Talking of perseverance and determination, can you share some leadership lessons you have learnt over
the years? 
In my mind, leadership depends on time and place. One would need to apply a leadership style that is harmonious at times despite differing views to a point where everyone in your team agrees to a common
goal and direction. As role models, I think Nelson Mandela and Mahatma Gandhi both addressed significant challenges but consistently applied harmony.
This philosophy can be applied in any context. How I look at it is this: for every cause there is an effect. We have full control over our own life, team or company to create a cause. Personally, I apply this philosophy in
everything I do, whether it is with family or work. There are times when one needs to take a more severe or a direct stand without engendering anger and resistance but ignite recognition and awareness.
It is a challenge for companies to retain good talent these days. How do you manage this?
We really need to try. We consistently try to engage with all our employees in RBS. We have a Mentor-Mentee programme with an aim to provide an element of wisdom and grey hair. There are plenty of opportunities for an
employee out there, which makes you think of the longevity of a company’s role. However, having things in place is key. 
At the end, those who want to stay will stay, and others will leave. If you provide a conducive environment for employees to develop, I believe they will continue to be a partner and a colleague.