India profits for small foreign banks plunge

Lower revenue, rise in costs, higher provisions hit earnings in a subdued growth environment

Foreign banks with limited branch presence in the country have witnessed a sharp decline in their earnings. Revenues have plunged, costs widened and credit quality deteriorated amid an uncertain macro-economic environment.

British lender Barclays’ India business suffered a loss of Rs183 crore in 2011-12, as it earned lower revenues from treasury and retail banking businesses. It had made a net profit of Rs100 crore in the previous financial year.

Barclays has nine bank branches in India and is exploring opportunities to sell its retail banking business here. The losses in commercial banking were Rs60 crore and in retail banking it was Rs131 crore.

FOREIGN BANKS’ INDIA EARNINGS
(2011-12 versus 2010-11)

• American Express Banking Corporation: Net profit of Rs 4 crore versus net profit of Rs 26 crore
   
• Barclays: Net loss of Rs 183 cr versus net profit of Rs 100 cr
   
• BNP Paribas: Net profit of Rs 81 crore versus net profit of Rs 188 crore
   
• UBS AG: Net profit of Rs 31 crore versus net profit of Rs 58 crore

American Express Banking Corporation, present in the four metropolitan cities through its offices, saw its India net profit declining to Rs4 crore in 2011-12 from Rs26 crore a year earlier, due to rise in expenses.

It had sold its banking unit to Standard Chartered Bank in 2007. In India, it is in the business of credit cards, including prepaid cards. It also distributes traveller cheques and accepts institutional deposits.

“The impact on earnings is due to higher operating expenses, primarily due to investments in technology and human resources for launch of new products like prepaid cards and expansion of current products and services. The higher funding costs for our expanding business and hardening of interest rates caused our interest costs to increase year-on-year,” their India spokesperson told Business Standard.

The lender’s interest expense more than doubled, while its operating expenses increased by 16 per cent during the financial year.

“American Express is committed to India and will continue to invest in this high growth market, to scale up market share and expand our range of products and services...The India growth has been of high quality, with our total income increasing 27 per cent and gross non-performing assets declining to 1.58 per cent,” the official added.

BNP Paribas India also witnessed a sharp erosion in earnings, with its net profit plunging by 57 per cent to Rs81 crore.

“The decline in profit for 2011-12 is a consequence of the generally subdued economic and market environment and is primarily on account of four factors — lower treasury income caused by unfavourable market movements, provisions made in anticipation of the potential stress in the microfinance portfolio in the wake of events in Andhra Pradesh, the lower appetite for external commercial borrowings among Indian corporates on account of the adverse currency movements and the one-time expenses incurred in connection with the establishment of our new consolidated country office premises,” a spokesperson from BNP Paribas India said.

Adding: “We wish to emphasise that BNP Paribas is strongly committed to India and is very positive on India’s growth potential. In this context, it is pertinent to note that our relationships in India also facilitate meeting offshore needs of large Indian corporate groups, while simultaneously growing the business for BNP Paribas globally.”

Swiss bank UBS AG reported a 47 per cent drop in India net profit at Rs31 crore for 2011-12. It incurred losses in the treasury bank and wealth management businesses.

Also, interest expenses more than doubled and the bank made higher provisions during the year.