Foreign banks' profits suffer decline in FY14; Citibank bucks the trend

MUMBAI: Most foreign banks operating in India suffered a decline in profitability in the previous fiscal due to the economic slowdown and slump in corporate activity, with only the US-based Citibank managing to buck the trend.

Improved income from retail banking operations, growth in the commercial banking segment and tight control on expenses helped Citibank increase its net profit by 6.4% to Rs 2,893 crore in the financial year ended March 31.

Standard Chartered Bank reported a slowdown in profitability in its Indian operations due to currency fluctuations and slower economic growth, even as the country remained the third-largest contributor to the group’s profits.

The London-headquartered bank reported a 46% decline in net profit in its Indian operations during 2013-14. In the current fiscal, its profit shrank 10% to $395 million till August from $439 million in the year-ago period.

“There has been a 9% currency drag on profitability. The top line growth has been affected by growth challenges in the economy,” said Sunil Kaushal, regional chief executive, India & South Asia at Standard Chartered Bank.

There has been limited opportunity to fund cos in the current environment as new projects are not coming up, Kaushal said, adding, “Funding is being done to refinance existing debt and meet working capital needs of corporates.”

Hongkong and Shanghai Banking Corporation, or HSBC, reported a 23% drop in net profit of its India branches in this period. For the half year ended June 2014, its profits were down 8.21% to $380 million.

Its retail and wealth management business, which was under stress, reported aprofit of $6 million at the end of June 2014 compared to a loss of $1 million last year. It continues to face challenges in commercial banking, global banking and markets and global private banking businesses that have been a drag on profitability.

“The Indian market is tough, with financial inclusion agenda gaining importance,” said Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services. “They (foreign banks) have not brought anything new to the Indian market in the past five years or so. They are just copying Indian banks,” he added.

Mid-sized foreign lenders also saw an erosion in profit in their Indian operations. Deutsche Bank, for instance, reported a 29% decline in net profit to Rs 729 crore in the year to March.

The increase in non-performing loans impacted profit growth at DBS India, which reported a sharp slide in its profits to Rs 2.24 crore at the end of March from Rs 288.53 crore in the previous fiscal. The bank’s bad loans increased to 10.19% at the end of March compared to 2.37% a year ago, a result of its aggressive growth strategy in the country.