Foreign banks sell retail portfolios to get back into shape

Having stretched themselves during the good times in 2006-07 and 2007-08, several foreign banks have spent the better part of the last two years dealing with retail loan delinquencies. Citibank, decided to put its non banking finance arm?Citifinancial?up for sale 10 months back; more recently Deutsche Bank has put its credit card business on the block.

Royal Bank of Scotland( RBS) is in the process of selling its loss making retail business to HSBC. HSBC is rebuilding the retail portfolio, albeit cautiously, having seen its NPAs at about 2% in March 2010. Standard Chartered Bank has tweaked its consumer banking business model and is focusing on the mass affluent and upper middle income customers with an emphasis on secured loan products.

The restrictions on the number of branches they can open, say foreign bankers, is hampering them from building scale. According to Neeraj Swaroop, CEO, Standard Chartered Bank India and South Asia, retail is a business of scale and if one takes into account operational costs and a downturn, it is difficult to scale up without adequate branch distribution Prashant Joshi, head (private and business clients), Deutsche Bank, said, ?With limited distribution, we are constrained in accessing retail low cost deposits.?? Joshi points out that even via NBFC route, acquisition costs and operating costs can be prohibitive. ?Irrational lending policies by some banks and make it difficult to create a sustainable business model through economic cycles,? he said.

N Rajashekaran, country business manager, global consumer group, Citi India, said, ?Retail banking is also about reach and access and we are looking forward to RBI?s discussion paper on wholly-owned subsidiaries for foreign banks in India which we hope will address the competitive disadvantages that we face in terms of our geographical presence and our need to have more points of presence across the country.?

Barclays, which launched its consumer and commercial banking business in 2007, grew its book rapidly from Rs 173 crore in 2006-07 to Rs10,551 crore in 2008-09, which lead to an increase in NPAs to 4.59% in two years. Barclays is now consolidating its book and realigning its business strategy and customer profile. Deutsche Bank is in the process of selling its credit card business . It continues to grow its deposits base and home loan business. It is sourcing Rs 80 crore of home loans every month and is marketing personal loans to its customers.