Ayear after terror struck the Trident-Oberoi fivestar complex on Mumbai’s Nariman Point, the taller Trident tower is open for business; the Oberoi is still under renovation. Every day, men in safety gears repair the outer wall of the top floor of the Oberoi even as another portion is harnessed by steel scaffoldings.This picture aptly represents the large foreign banks in India today. A year after the downturn struck the global banking world, they are all in repair mode. Growth is a sacrifice at the altar of efficiency. They are looking forward to the day when they can go full tilt for business—but safety will now be a priority.
The trinity of Citibank, HSBC and Standard Chartered, have all dropped down the league table for banks with a balance sheet size of Rs 24,000 crore or more. The almost-synchronised drops by 5-7 places on the table by these three also have other similarities—very low ranks on growth parameters, and at the same time, very high ranks in efficiency and quality of assets. Standard Chartered, at an overall #16 (last year at #9), is ranked #1 in quality of assets. Citibank, which has dropped from fifth to 10th this year, is top dog on the parameter of return on assets. HSBC (13th this year, down from 6th last year) also ranks in the top five on many efficiency parameters, and holds the #2 position for operating profit per employee. However, when we look at growth of loans and advances it’s a totally different story. The three banks are in the thirties in rankings. In growth of deposits too, Citibank and StanChart are at #35 and #36 with HSBC at #28.
And the NPA numbers tell the other side of the story. The total NPA growth ratio rankings place HSBC last at #39, with Citibank at #37 and StanChart at #27. The redeeming feature is operating profits, where all the three are in the top 10 with Citibank at #5.
If growth suffered, it’s also because of the problems these banks were facing globally in the wake of the subprime crisis. Viren Mehta, Director, Ernst & Young India, said: “Everybody wants to conserve capital. India is an alternative for all these banks but they have to maintain their home markets and their ability to pump in capital has been affected.” As the banking crisis peaked, foreign banks in India faced a flight of deposits when panicky depositors felt public sector banks were a safer option. Stunted loans and advances resulted in the NPAs getting magnified against the backdrop of a smaller portfolio.
So how was the NPA snowball created? Citibank and HSBC had gone out aggressively wooing consumers with loans—personal and housing. After the success of Suvidha accounts (a nofrills corporate salary account), Citibank had even done a pilot project with a no-frills Pragati account for the lowincome household. And HSBC did an aggressive communication programme targeting SMEs and house buyers. It led to delinquencies; and a purge followed. Stuart A. Davis, HSBC’s India CEO, points out: “We have experienced a significant reduction in unsecured retail assets (credit cards and personal loans). We are confident we have passed the hump of delinquent loans in the portfolio and we will now focus on when we can start acquiring those assets again. It will be a much more controlled growth.” He adds HSBC will sparingly use direct selling agents.
“We had some very undesirable NPAs,” says Mark Robinson, CEO of Citibank, South Asia. He admitted that some of the consumer loans done by the bank were high-risk and had led to avoidable losses. It forced the bank to almost stop acquisition of new credit card customers. StanChart, on the other hand, had slowed down its credit cards overdrive three years ago and the personal loans activity 18 months back. Neeraj Swaroop, Chief Executive for India and South Asia at Standard Chartered, says: “We had deliberately slowed down the unsecured lending business (cards, personal loans) about 18 months back and focussed more on secured assets as we had realised the market was being spoiled, and hence our NPAs on the retail side was much less than competition. On the wholesale side we were able to take away market share, particularly in the cross-border space.”
In retail, the focus is shifting to the affluent class again. At Citibank, operation Pragati is on the back burner. “We have opened the most number of no-frills accounts amongst our peers. These accounts are not as yet profitable,” says Robinson. While it has some fresh plans on Suvidha, the biggest focus remains the corporate client, and fee-based income remains a mainstay. Retail may not be the priority but the action continues on other fronts. Senior-level hiring has begun to pick up on the non-banking fronts—mainly advisory and broking. “In the last 12 months we have continued to support our top 500 clients through a difficult period,” says Robinson. StanChart is also increasing its branch network by three this year from its 90 existing branches; the consumer play will be the mandate of Standard Chartered Capital Markets (formerly UTI Securities).
Foreign banks, of course, have one arm tied behind their banks: The Reserve Bank of India approves around 15 new branches a year for all the foreign players together. Therefore, corporate clients will continue to be the focus (with a reliance on non-banking entities for consumer business).
India Remains the Flavour
Whatever be the constraints, the foreign banks are here to stay (at least most of them). HSBC and StanChart have been around for more than 150 years and Citibank has been in India since 1902. India, after all, represents growth. While Citibank’s global troubles are well known, HSBC and StanChart, are more Asiafocussed and emerged less scathed. Davis of HSBC points out that the global CEO of HSBC is shifting his office to Hong Kong from London. And Swaroop of StanChart says that the bank will be the first to issue Indian Depository Receipts (IDRs) listing the parent in India in the second quarter of 2009 (IDRs were introduced in 2004 but no issues have happened yet. IDRs can be issued by a depository in lieu of equity shares held by an overseas custodian). Citibank’s Robinson adds that he has placed a proposal before the parent bank for approving more investments into India. “For the last six years we have not repatriated any dividends out of India. Private Indian banks have many international shareholders to whom they pay dividends,” says Robinson. Hopefully some day, in the not too distant future, a clutch of foreign banks would also have, besides a solid retail base, a neat little domestic investor base. The BT-KPMG sweepstakes would then get even more exciting!