Foreign lenders' India earnings weaken in FY14

Standard Chartered Bank has seen a 46% decline in its India net profit during 2013-14 (April-March)

Slow economic growth, muted business confidence and an uncertain macro economic environment appear to have squeezed the profitability of foreign banks in India.

Standard Chartered Bank, largest foreign lender in the country in terms of branch network, has seen a 46% decline in its India net profit during 2013-14 (April-March). Hongkong and Shanghai Banking Corporation (HSBC) reported a 23% drop in net profit of its India branches in this period.

Citibank is now the most profitable foreign lender in India but its earnings growth was muted; net profit increased only 6% to Rs 2,893 crore in FY14.

Deteriorating asset quality and the need for higher provisioning capped Standard Chartered Bank's earnings growth here. The British lender saw the net profit of its India branches decline to Rs 1,584 crore from Rs 2,960 crore a year before, as it made higher specific provisions against advances. The gross non-performing asset (NPA) ratio increased to 7.82% at the end of March, from 5.98% a year earlier.

"SCB India's local results for FY 2013-14 show an increase in income of 9%, though offset by higher loan impairment, resulting in a reduction in profits. Rise in loan impairment reflects higher provisions in the corporate portfolio, reflecting the challenging external environment," said a spokesperson.

For HSBC, lower commission and loss on sale of investments dragged down its India earnings. The bank's profit after tax in India narrowed to Rs 1,490 crore from Rs 1,936 crore. It, however, improved its gross NPA ratio by 11 basis points to 1.65% at the end of March.

The stress on earnings is not restricted to large foreign banks only. Mid-size lenders also saw erosion in their India profit. Deutsche Bank, for instance, reported a 29% decline in its India net profit to Rs 729 crore during 2013-14.