Impairments on consumer assets main culprit; the former’s FY09 loan book down 8%, latter’s by 2%.
Hit by losses on retail portfolios, foreign lenders Hongkong and Shanghai Banking Corporation (HSBC) and Deutsche Bank shrunk their loan books in 2008-09, while others saw a significant slowdown in growth.
For the year ended March 2009, HSBC, the third-largest foreign bank in India by net profit, scaled down its loan book by 8 per cent to Rs 27,588.60 crore from Rs 29,944.40 crore at the end of the previous year.
In a recent interview with Business Standard, Stuart Davis, chief executive officer of HSBC, had said the lender had seen significant impairments on consumer assets portfolio. “I wouldn’t say we have been inactive of late, but we’ll play it safe for a while. We’re taking a more conservative view in terms of who we’re lending to, favouring those who have salary accounts with us,” he said.
Deutsche Bank shrunk its loan book by about 2 per cent to Rs 8,797.60 crore from Rs 8,960.10 crore at the end of 2007-08.
Up to last year, a large number of foreign banks were keen on acquiring consumer assets, especially high-yield ones such as credit cards and unsecured personal loans. A few of them even set up non-banking finance companies (NBFCs) to tap this market as NBFCs, unlike banks, are not subject to constraints on branch expansion.
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One year on, the complexion of retail banking has changed with big players such as ICICI Bank choosing to put brakes on the business. Many foreign banks such as Deutsche Bank have indefinitely out on hold their plans to open NBFCs and have instead shifted focus to the premium customers segment, where they say delinquencies have been much lower.
Since the second half of last year, most foreign banks have virtually stopped unsecured lending to customers with whom they do not have a prior relationship. Once big players in automobile loans, Standard Chartered, Citi and HSBC are dormant in the segment now.
As a result of this caution, foreign banks saw growth in outstanding credit drop to 4 per cent for the year ended March 27, 2009, from 28.5 per cent in the year-ago period. During the period, credit flow from scheduled commercial banks slowed from 22.3 per cent to 17.3 per cent.
However, steps like cutting back on retail assets and confining themselves to premium customers or those with salary accounts have not been enough to arrest the slippage in quality of advances.
The five biggest foreign banks by net profit saw their gross non-performing assets (NPAs) for the year ended March 31, 2009, rise by between 45 per cent and 400 per cent over the previous year’s figures.
Loans on which interest has not been paid for more than 90 days are required to be classified as gross NPAs.
Among the three biggest foreign banks with loan books exceeding Rs 25,000 crore, HSBC was the worst hit, with gross NPAs more than doubling to Rs 1,540.1 crore for the year ended March 31, 2009.
| PERFORMANCE OF FOREIGN BANKS IN 2008-09 | |||||
| (Rs crore) | Citi | StanChart | HSBC | Deutsche Bank | Bank of America |
| Net profit | 2,173.10 (-20.4) | 1,906.70 (-11.75) | 1,291.20 (-8.3) | 430 (-11.3) | 336.9 (-49.2) |
| Total income | 10,422.50 (-23.9) | 8,746.40 (-21.47) | 9,026.30 (-27.2) | 2,901.10 (-17.7) | 1,000.20 (-16.07) |
| Net interest income | 4, 411.4 (-20.7) | 3,159.80 (-14.9) | 3,665.90 (-23.7) | 1293.5 (-42.3) | 455 (-29.7) |
| Advances | 39,919.90 (-4.0) | 37,516.00 (-12.4) | 27,588.60 (-7.8) | 8,797.60 (-1.8) | 3,355.90 (-2.7) |
| Deposits | 51,677 (-12.0) | 41,801.70 (-12.9) | 49,970.00 (-17.2) | 14,147.30 (-2.8) | 4,166 (-0.5) |
| Operating expenditure | 2,587.20 (-18.7) | 2,499.70 (-21.9) | 2,194.60 (-2.3) | 1,155.00 (-9.5) | 1,75.2 (-4.7) |
| Total expenditure | 8,249.40 (-24.9) | 6,839.70 (-24.5) | 7,735.10 (-31.0) | 2471 (-19) | 663.2 (-19.2) |
| Gross NPAs | 2,993.50 (-92.7) | 1,057.50 (-46.2) | 1,540.10 (-120.9) | 77.2 (-401.2) | 0.697 (-0.697) |
| Net NPAs | 20,75.6 (-85.0) | 514.1 (-48.84) | 391.03 (-123.8) | 242.64 (-341.9) | (-) (-) |
| Gross NPAs to gross advances (%) | 5.51 | 2.78 | 5.36 | 2.76 | 0.02 |
| Gross NPAs to gross advances in 2007-08 (%) | 2.57 | 2.14 | 2.29 | 0.66 | 0.02 |
| Net NPAs to net advances | 3.67 | 1.37 | 1.42 | 0.88 | Nil |
| Net NPAs to net advances in 2007-08 (%) | 1.83 | 1.04 | 0.58 | 0.22 | Nil |
| Provisions for bad loans and write-offs | 1,607.10 -160.7 | 480.2 -193.1 | 1,654.20 -153.9 | 125.9 -335.6 | 56.0* -1650 |
| Note: Figures within brackets indicate % growth/decline over previous year, *Provisions for total assets Source: Banks | |||||
Late entrants in the retail loan segment have been hit particularly hard. Barclays Bank saw its gross NPAs shoot up 19.75 times to Rs 1,047 crore at the end of March 2009 as against Rs 53 crore a year ago.
Foreign banks, along with their private sector counterparts, have also had to deal with accusations from the government and the Reserve Bank of India that they are tight-fisted with loans and are not passing the benefits of the current low-interest regime to customers.
The deterioration in asset quality meant that foreign banks had to set aside large sums of money for bad loans in 2008-09. Citibank set aside Rs 1,607.1 crore as provisions and write-offs for NPAs compared with Rs 616.66 in the previous year. Standard Chartered saw provisions for NPAs increase almost three-fold to Rs 480.2 crore from 163.8 crore at the end of the previous year.