Standard Chartered Bank (StanChart), the largest foreign lender in India in terms of branches, has posted a loss in 2015 due to rising bad loans and slow growth in loans and deposits.
This has dragged the bank’s overall results down to their lowest level since 1989.
Read more from our special coverage on "STANDARD CHARTERED"
StanChart India reported a loss before tax of Rs 6,729 crore ($981 million) in 2015, against a profit of Rs 3,848 crore ($561 million) in 2014.
This was mainly caused by a steep increase in impairment losses on loans and other credit risk provisions that jumped almost eight times to Rs 9,198 crore ($1341 million) from Rs 1,173 crore ($171 million) a year ago.
At the global level, the bank said its the pre-tax loss was Rs 10,288 crore ($1.5 billion) in 2015, down from profit of Rs 28,808 ($4.2 billion) a year earlier.
“Corporate and commercial clients’ loan impairment increased significantly to Rs 21,949 crore ($3.2 billion). We have reviewed the portfolio through 2015 and have increased provisioning, largely to reflect lower commodity prices as well as further deterioration in India,” the bank said in its annual report.
It added that impairments increased significantly in India because of continued corporate stress coupled with a challenging refinancing environment.
The bank has conducted a review of the corporate book, especially on some “vulnerable portfolios such as commodities and India”.
“While these reviews did not uncover any specific material adverse findings, we identified a small number of accounts that needed to be separately managed by our specialist recovery unit,” it added in its annual report.
StanChart has an approximately Rs 17,150 crore ($2.5 billion) exposure to the Essar group and has decided to recall or sell the loan. These steps are being taken after the overall gross non-performing loans increased to Rs 87,500 crore $12,759 million in 2015, from Rs 51,400 crore ($7,492 million) a year ago.
With respect to India, the lender specifically added that corporate earnings continued to be low, the interest cover ratio was at five-year lows, and the value of stalled projects increased sharply in 2015, leading to higher credit deterioration.
“The group has actively managed the India portfolio in 2015 by reducing exposure to vulnerable accounts. The net exposures have reduced from Rs 2,88,000 crore ($42 billion) in 2012 to Rs 2,05,800 crore ($30 billion) in December 2015,” the bank said.
The annual report added that the corporate business in India had also shrunk because of slowing global trade finance flows. “Portfolio management action, and a slowing in the origination of new business due to underlying economic conditions, contributed to the decline,” said the bank.
“Income from retail clients declined three per cent as we de-risked the unsecured portfolio and also due to lower deposit income in India as a result of the Reserve Bank of India (RBI) lowering interest rates during the year,” it added. In 2015, the RBI cut repo rate, at which it lends to banks, by 1.25 percentage points.
“The slowdown observed in 2014 has continued into 2015 and the macroeconomic backdrop continues to be challenging with slow progress in reforms, which were promised by the new government in 2014, continued high indebtedness in some sectors, and tightening in refinancing by local banks,” StanChart said.