Banks see profits in India's millionaires club

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But wealth managers seeking to profit from India's new crop of millionaires, who have made their fortunes in software, telecommunications, oil refining and property, must first win over suspicious clients who are notoriously coy about their wealth and have fixed ideas about their investment portfolios.

"The first question you hear is: 'Who told you I have money?'," said Sonu Bhasin, head of Axis Bank's wealth management arm, whose team of 75 relies on referrals for clients.

"Being a private banking client is not seen as a status symbol to flaunt. They don't want to talk about it with friends and they want absolute discretion from us," she said.

Economic growth which has averaged 8.6 percent for four years and a record-setting stock market have boosted the number of Indians with more than $1 million to invest by nearly 21 percent in 2006 to 100,015, the Merrill Lynch/Capgemini World Wealth report showed.

But even that is a gross underestimate, bankers say.

"There's probably that many millionaires in south Mumbai alone," Shailendra Bhandari, managing director, Centurion Bank of Punjab, said tongue-in-cheek, referring to the financial hub's well-heeled district.

Global banks, including Merrill Lynch, Citigroup, UBS, Standard Chartered, BNP Paribas, HSBC, Morgan Stanley and Societe Generale have been expanding their wealth management services in India.

Local banks including ICICI Bank, who have focused on credit cards and home loans, are also jumping in, lured by the more lucrative fee-based incomes in managing wealth.

RISK APPETITE

The banks are encountering younger, more sophisticated clients with a higher risk appetite than their western peers, but who may be slow to warm up to professional wealth advisers.

"Many of them have a fixed notion of what their portfolios should look like," said Bhasin at Axis, which has tied up with Banque Privee Edmond de Rothschild Europe to also service overseas Indians holding about $1 trillion of investable assets.

"It takes a while to convince them we are on the same side of the table, that they need not take on so much risk," she said.

The newly wealthy are open to more risk and seek options such as hedge funds, private equity and real estate.

"The level of sophistication continues to rise, as does the level of money being made by younger entrepreneurs," said Peter Hu, head of investor solutions, Barclays Capital, Asia ex-Japan.

"Generally speaking, risk appetite is higher, since much of the wealth in places like India and China has been created by the current generation, and they tend to make their own decisions and are open to less traditional products," he said from Singapore.

Wealthy Indian investors, who in the past bought gold, are also signing up for wine-tasting sessions hosted by private banks, and checking out contemporary art and swish yachts.

"More investors are keen to put at least some part of their assets in art, and are looking to their banks to help them do that," said Dinesh Vazirani, director of Saffronart, which sells art and offers advice on investing in it.

"We are also seeing a younger profile of investors, 25-40 years, that is keen on art as an asset," he said.

MASS AFFLUENCE

Creating a database of high net worth individuals (HNI) and designing products can be a huge challenge in India, where only about 30 million of the billion-plus population pay taxes, and are coy about revealing income and wealth details.

"Many of our clients are entrepreneurs who hold cash as their largest asset class, and about 70 percent of HNIs keep less than half their assets with private banks," said Shiv Khazanchi, head of Standard Chartered's private banking unit in India.

But he saw opportunity in the challenge.

"Indian entrepreneurs are expanding their businesses, taking their companies public, making acquisitions, so they want professional advice," said Khazanchi, who has 200 clients in financial hub Mumbai and aims at 1,000 clients in six cities.

Centurion Bank of Punjab is targeting not just HNIs, but also the upper end of the middle class that it estimates to be about 50 million households in all.

"Even a fifth of this, with an annual growth rate of more than 20 percent, gives us a really big base," Bhandari said.

Still, competition for wealthy clients is expected to be fierce, with a manpower shortage adding to bankers' woes.

Merrill Lynch plans to more than double its 250-strong private banking team, while Standard Chartered is hiring 50.

And while foreign banks are keen to beef up their presence in India ahead of a planned 2009 review of the financial services industry, local banks are confident they will have the edge, particularly in tapping the wealthy in smaller towns.

"We gave them their first credit card, the first car loan, the first home loan," said Anup Bagchi, who heads a private banking team of 500 at ICICI Bank, India's No. 2 bank.

"They will come to us to take care of their wealth, as well," Bagchi said.