Even as its parent reported drop in profits due to a pile up of bad debt and losses from North American operations, the Indian arm of HSBC reported a healthy growth in net earnings. HSBC India’s country head Naina Lal Kidwai tells Sapna Dogra Singh that the foreign bank intends to continue investing in India but she wants the government to treat banks from countries such as the UK differently from the others.
Profit from HSBC’s India operations grew in excess of 25 per cent, while your parent company reported a sharp fall. What was the reason?
At our group level, we have a market cap of around $80 billion and a profit of $19.9 billion. That is good in this environment. Profits from Indian operations have grown at a compounded annual growth rate of 45 per cent in the last three years.
At a time when people were worrying about the cost, we had the luxury to invest. We have invested a lot in our IT platform and marketing. We invested $330 million to acquire a retail brokerage firm, and then started an insurance joint venture. We will continue to invest and there would not be any constraint.
You had incurred a loss of $155 million in personal financial services, which is more than double the level last year. What are the reasons?
There are two aspects. One is investment and the other is losses from a personal finance business like unsecured lending. All investments, such as spending on information technology and setting up new branches (in 2008, HSBC opened three branches), are not capitalised but treated as revenue expenditure.
We write off as they come rather than carrying it over. Then, there is impairment cost. Our provisioning is on net flow method. We take the hit upfront. When money comes back, we write it back. Bad debts are not in our mortgage book or in the SME portfolio. In our case, it is in consumer finance, which we call personal loans, unsecured lending and credit cards.
So, your bad debt is not the result of the global financial crisis?
In India, our problem started much before the global problem started. The collection environment became such that it was difficult to collect what was due. It sends a signal to people, who are paying regularly, to default. We need to have realistic norms for collections. But we do not have a crisis in mortgage.
Within the personal finances division, we are the second-largest card issuer. These are the businesses we are investing in today. These would be the growth drivers for us tomorrow. Businesses that we invested in three years ago, such as commercial banking, have become our growth drivers today.
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How much are you planning to invest in India during 2009?
We would not be able to provide this number. Last year, we invested in a retail brokerage firm and also in an insurance joint venture. The group has not hesitated in investing wherever we wanted to invest.
How much investible surplus do you have?
We do not have the latest numbers till December 2008. But we had a surplus of Rs 8,700 crore till March 31, 2008. Profits earned during last year would have added to that, less the investment we have made.
The government and the Reserve Bank of India are going slow on banking sector reforms that could have provided more flexibility to foreign banks. The reason being that overseas banks are not performing well at this time and it’s considered a risk...
The Ministry of Finance has to factor in that all banks are not in trouble. We have been in this country for 155 years. They should not paint every bank and every country with the same brush. HSBC has been making profits and the UK has been more receptive in allowing Indian banks to open branches. This answers the question of equal treatment.
How do you look at 2009 and what are your focus areas?
It depends on which industry is doing better. For us, it is products like trade credit that are good. While overall international trade has come down in the world, even India has slowed down. But the trade numbers are still strong.
The non-resident business is another area which is giving us good growth. We expect the rural segment to be strong. We do not have rural branches, but we do rural lending through microfinance. It is small but important. We expect it go up.
There is a compliant that foreign banks, like yours, have not reduced lending rates?
It is not true. We were among the first to reduce deposit rates two months ago. In many retail segments, we are only followers. If the market leader reduces interest rates, we have to follow them and reduce the rate.
Or else we would lose our market share. In corporate lending, it all depends on the strength of the companies and there is no difference between a domestic and a foreign bank.