Mumbai: Standard Chartered Plc on Tuesday said pre-tax profit in India fell 16% to $676 million (around Rs. 3,700 crore today) in 2012 because of weak corporate sentiment and unfavourable currency movements.
Operating profit from its wholesale business, which includes loans to companies, fell 18% to $581 million.
Wholesale banking accounts for 75% of the lender’s business in India.
Gross bad loans increased to 6.7% from 3% in 2011. Positively, though, net interest margin, the difference between the cost of and income from funds, improved to 3.5% from 3.1%.
“We are comfortable with our portfolio quality but vigilant because the economy has not turned around as yet. But our long history in the country gives us a good handle on the risks,” said Sunil Kaushal, regional chief executive India and South Asia, Standard Chartered.
In a presentation to reporters, Kaushal said the banks’ profit would have declined by 4% if not for the 15% fall in the rupee in 2012.
From an average of Rs.46.63 a dollar in 2011, the local currency weakened to 53.43 per dollar in 2012, the bank said.
Standard Chartered Bank divides its regions into eight—Hong Kong; other Asia Pacific countries including China, Indonesia, Taiwan and Malaysia; Singapore; Americas, the UK and Europe; West Asia and North Africa; Africa; Korea; and India.
The fall in India’s profit was the second-largest among the eight regions. Only profits from the Americas, the UK and Europe region fell more sharply, dropping 29% to $261 million.
India was still the third-largest contributor to the bank’s global profit, behind Hong Kong and Singapore. India contributes about 10% of the bank’s global profit.
Standard Chartered Bank gained about $10 million in 2012 by buying UK rival Barclays Plc’s individual and small business portfolio in India, Kaushal said.
Hong Kong recorded a $1.66 billion pre-tax profit, up 7%, while profit in Singapore fell 4% to $966 million.
Kaushal blamed the drop in profit in India to the decline in corporate activities and the adverse movement in the local currency. “Economic growth has slowed to 5.2% in 2012 from an average of 7.9% in the five years before that because of which corporate activity has slowed,” Kaushal said.
Standard Chartered Bank’s advances grew 11% to Rs.66,000 crore in 2012 after adjusting for the exchange rate movement. Customer deposit growth was just 7% at Rs.74,000 crore, chief financial officer Anurag Adlakha said.
Provisions for bad loans, however, dropped 9% to $156 million mainly because the bank had set aside most of the amount in the first half of 2012.
Of this, $129 million was set aside for bad loans from the corporate sector.
The bank’s corporate loan book continues to suffer as total non-performing loans constitute about 10% of it.
Kaushal said the bank is “cautiously optimistic in 2013 because there has been a mood change for the positive and business and economic activity have picked up.”
Standard Chartered Bank wants to “strike a balance” between loans to individuals and companies in India this year. “We will try to grow the retail business but not ignore the wholesale business, which has been the engine of our growth in India so far. We have opened five new branches in India in 2012 and another three in 2013 but it is always subject to regulatory approvals,” Kaushal said.
Wholesale business dominates the bank’s books in India with $1.14 billion, or 72% of the total $1.58 billion income generated in the country.
The bank also makes money by helping companies manage their cash flows and earning fees on cross-border trade—both grew in double digits in 2012.
About two-thirds of the bank’s income comes from interest and the rest is earned in fees.
Kaushal said the bank will continue to invest in India, which is one of its “core” markets. “We have a very competitive business and are convinced that India will become one of the world’s largest economies and this is the best opportunity here,” he said.
Standard Chartered Bank’s India depository receipts rose 2.03% to Rs.128.45 on Tuesday on BSE, while the benchmark index Sensex gained 1.4% to 19,143.17 points.