Standard Chartered Bank, which announced a small increase in pre-tax profits on Tuesday, faces a specific challenge in India: it has more branches than any other international lender, but not nearly as many as it needs.
Having opened three already during 2013, the bank now stands just one short of its century, with 99 branches in 42 cities — roughly twice as many as second-placed HSBC.
Still, as India’s oldest foreign bank, having begun operations here in the 1850s as part of the now-largely forgotten Chartered Bank of India, Australia and China — this represents less-than-speedy progress.
It isn’t all the bank’s fault, of course: foreign operators are heavily regulated by the Reserve Bank of India, and can’t open anything close to the number of branches they often feel they need.
But it is becoming more of a problem. In India, which is StanChart’s third largest market by income, these constraints stop it growing its retail banking division quickly, creating what regional chief executive Sunil Kaushal admits is an “unbalanced” business model.
In India, StanChart’s wholesale bank division makes up nearly three quarters of its total income of $1.6bn, although the same division makes up barely a quarter of the income for the global bank as a whole.
Here are the numbers for India:
As an emerging-markets-focused bank, India ought to be one of the group’s fastest-growing markets, especially given the rapid expansion of the banking sector overall in Asia’s third largest economy.
But as the nation’s economy slowed down last year, many Indian banks have found their wholesale divisions saddled with rising bad debts from heavily indebted industrial houses, such as Anil Ambani’s Reliance group or London-listed Vedanta Resources.
As the FT’s Henny Sender wrote last year:
StanChart is suffering more than most. Its non-performing loans in India amount to 10 per cent of its total portfolio at the end of June , double the number it reported at the end of last year and much worse than many rivals. By contrast, Citigroup’s problem debts are running at only 1 per cent of its Indian balance sheet.
In Tuesday’s group statement, StanChart chief executive Peter Sands singled out India a having had a difficult 2012:
The macroeconomic environment – normally a tailwind for us, given the markets we are in – also proved quite challenging in 2012. Economic growth slowed in most of our markets, reflecting the global slowdown. Local currencies fell against the US dollar, and some of our markets were particularly challenged. India was one example: the country’s GDP slowed sharply, from an average of 7.9 per cent over the previous five years to 5.2 per cent, and the rupee fell 15 per cent year on year. Business momentum plummeted as political deadlock and governance scandals rocked confidence. Consequently, our India business slowed, with income falling 12 per cent, while we saw some increase in impairments, resulting in profits falling by 16 per cent.
Speaking in Mumbai, StanChart’s India CFO Anurag Adlakha told beyondbrics that the bank had managed to hold these bad loan levels steady over the last 6 months, meaning full-year figures were “broadly in line with what you saw in the first half of the year”.
So things aren’t getting worse, but they aren’t getting better. And even though StanChart is set to become the first foreign bank in Indian history to open its hundredth branch in the next month or so, unless the RBI has a sudden change of heart, the bank’s unbalanced business model isn’t going to change quickly either.
StanChart: 10 years and counting, thanks to emerging markets, beyondbrics
StanChart to pay $330m Iran settlement FT
StanChart: east Asia drives record gains in 2011 beyondbrics