Naina Lal Kidwai, HSBC Holdings Plc’s country head for India, remembers when the bank’s plan to boost profits by lending to the nation’s burgeoning middle class went awry.
It was February 2008, and the government of Prime Minister Manmohan Singh stunned local lenders by ordering them to cancel $15 billion in loans to help debt-strapped farmers. Inspired by the amnesty, borrowers from all walks of life, some of them newly minted HSBC customers, began abandoning their own debts as political rhetoric about heavy-handed loan collectors grew, she says. Kidwai’s consumer unit lost $374 million in 2008 and 2009 as credit card customers and retail borrowers simply stopped paying — chopping HSBC’s India earnings by about half in 2009, Bloomberg Markets magazine reports.
“The whole business across banks got into one hell of a bind because suddenly it became OK not to repay your loans,” says Kidwai, 53, sipping a Coke in her first-floor office in a 10-story building in central New Delhi.
HSBC would seem an unlikely candidate for Asian growing pains. The bank was founded in Hong Kong and Shanghai in 1865 and on Thursday is the biggest foreign lender in China and among the largest in India. Yet Kidwai’s loan nightmare is just one of the setbacks and regulatory hurdles that HSBC has confronted as it turns to emerging markets to fuel growth.
‘Missed opportunities’
During two crucial decades — the 1990s, when India opened its economy to outside investors, and the 2000s, when China blossomed into an economic superpower — HSBC strayed from its Asian turf. It switched its headquarters to London from Hong Kong in 1993 en route to becoming Europe’s No. 1 bank in market value. Then, in a disastrous US foray in 2003, it paid $15.5 billion for subprime lender Household International Inc.
After the housing market began to collapse in 2007, HSBC set aside more than $58 billion for North American losses. Now, after its Western detour, HSBC is navigating the challenges of India and China — the most potentially lucrative emerging economies. China’s 20 per cent cap on foreign ownership of banks by a single investor and India’s reluctance to licence new branches are among local rules stymieing growth.
