Foreign lender Standard Chartered Bank aims to boost its Indian retail loan portfolio to 40 percent of total loans from 29 percent, to tide over the stress in the corporate segment.
“Whenever you look at the economic cycle, the corporate book is what starts giving loan impairments. And typically in India, thanks to the (credit) bureaus and technology, the asset quality in retail has been pretty good. We have seen that in a couple of cycles that the retail quality has stood the test of the times,” said Zarin Daruwala, CEO, India, Standard Chartered Bank.
“We will offer the same products – mortgage loans, personal loans, credit cards and SME or the business banking. So, not deviating from that, because our experience has been good on the credit quality front in retail,” said Daruwala, who formerly served as the Executive Director at the retail-heavy domestic private lender ICICI Bank.
Stress on corporate book
Although the corporate loan book has been a pain point for StanC like other lenders, Daruwala claimed the bank has provided aggressively for doubtful assets and does not see any further pain.
Most domestic banks too, have been aggressively growing their retail loan book considering a chunk of the Rs 8.5 lakh crore bad loans in the banking industry comprises of large company defaults.
Without specifying details, Daruwala said the bank has very few accounts in the Reserve Bank of India’s two lists of 40 large stressed borrowers, referred to be resolved under the Insolvency and Bankruptcy Code (IBC).
Daruwala hopes resolutions from the first list of 12 accounts will set precedence for the future. “I am hopeful of resolutions, especially the big ones. We will have to see the takers on the second list,” she said.
Priority sector lending
Daruwala finds the new priority sector lending (PSL) guidelines to be a challenge.
As a foreign lender, the new regulatory rules mandate banks with over 20 branches to comply with priority sector lending (PSL) norms. This entails 18 percent loans to be directed toward agriculture, including 8 percent to small and marginal farmers.
“Clearly that is a challenge given that we don’t have the branch network. So as of now we are looking at the PSL certificate route to fulfill our obligations, some portfolio buyouts and some partnerships,” she said.
The PSL rules apply to three foreign banks in India -- Standard Chartered, Citi and HSBC.
As a foreign lender with 100 branches, it does not wish to opt for a wholly-owned subsidiary (WOS) route for its operations due to its capital intensive nature.
"It (converting to WOS) is very capital expensive. If you subsidiarise, the capital which is put into the country is dedicated from the tier-I capital of the parent," Daruwala told reporters when asked about the impediments to conversion into WOS.
She said the government has made necessary changes to the taxation structure to facilitate it but have not formed any strategy.
The RBI had announced this scheme to encourage foreign banks to move to this model following the global financial crisis of 2008. In its guidelines, the RBI had pointed out the WOS model for foreign banks in India would involve local incorporation, a local board of directors, and a ring-fenced capital and assets profile that would not be affected by the impact of global events on its parent.
At least 14 foreign banks are likely to open branches across India even as the RBI is holding back approvals to push WOS.
Converting into a WOS, insulates the country operations of a foreign bank from any reverses that it may face overseas. At present, 40 foreign banks operate as a branch, while it is mandatory for all new entrants to operate as a WOS.
After the WOS route norms, there was a sharp reduction in India operations by foreign banks with number of branches falling to 288 in 2016-17 from 317 in 2015-16.
As of the end of March 2017, there were a total of 49 foreign banks operating these 288 branches in the country, led by Standard Chartered Bank with 100 branches, Citibank with 40 branches, HSBC (Hong Kong and Shanghai Banking Corporation) with 26 branches and Deutsche Bank AG with 17 branches, RBI data showed.
Anushka Sharma as brand ambassador
The bank launched a digital initiative to enable customers to instantly open online savings accounts. Hindi movie actor and producer Anushka Sharma is the new brand ambassador.
Daruwala said the digital initiative will help the bank onboard new customers. She added the retail segment has grown 20 percent in the last two years and the bank expects a similar trend in future as well.
Within retail, the bank's credit cards in use have grown three times in the last two years, she said, adding, it does not want to increase the unsecured book from the present 6 percent levels.