Mumbai: Hong Kong and Shanghai Banking Corp. Ltd(HSBC), the fourth largest financial institution in the world by market capitalization, expects its retail operations in India to turn around after three years of losses, and plans to rebuild its credit card business in the country.
It will partner local companies to ensure a “targeted, precise and data-oriented” widening of the credit card business, said Gannesh Bharadhwaj, head of retail banking and wealth management at HSBC in India. But the bank still plans to stay away from personal loans, as these are regarded as “risky”.
HSBC’s retail losses swelled to $219 million (Rs1,073 crore) in 2009 from $115 million in 2008. In 2010, this narrowed to $82 million and stood at $4 million in the first half of 2011.
Data for the full year is expected to show that retail operations are no longer making losses.
“Retail banking numbers are in line with our expectations,” Bharadhwaj said. “That turnaround has been as per our expectations, and this year, we hope, will be a turnaround year for us.”
The bank’s retail operations are focused on mortgages, credit cards and personal loans, with the losses having mostly originated from the last two segments.
The bank’s credit card portfolio has halved to one million from a peak of two million in 2006. The bank plans to source customers directly or launch co-branded cards, Bharadhwaj said.
“Over the last three years, we have stopped open-market sourcing, and attacked collections and focused on getting tight on limits, trying to get our money back,” he said. “Now, loan impairment charges are under control and we feel that we can actually have a business that works, and rebuild the business.”
Bharadhwaj was earlier based in the US as managing director of HSBC’s Prime Cards, a segment of its credit card business.
“We have to do it differently than in the past, otherwise we will be back in the same boat. So, it will be far more measured, focusing on the quality of customers rather than quantity, on profitability rather than volumes,” he said.
The bank is keeping a close eye on return on equity (RoE) for its unsecured products. It’s looking at an RoE of 20%.
HSBC will use more data from credit information bureaus and will select customers to whom a card can be offered rather than making the offer first and conducting due diligence later.
“We are looking at doing more of what is done in the West, which is find a way to be more targeted. For example, your best credit risk is somebody who has a liability relationship with you. That is why HDFC Bank has done so well,” he said.
A sharp fall in loan impairments has given the bank confidence to build the business again, Bharadhwaj said.
“Getting new customers is an issue because we don’t have branches; so now what we are relying on is partnerships. Partnering with someone who has a lot of data—on spending for example—and using that data to tell us something about spending and, hence, income, and take that to a credit bureau to check credit worthiness,” Bharadhwaj said. HSBC has 50 branchesand 150 ATMs across 29 Indian cities.
Chaitra Bhat, an analyst at LKP Securities Ltd, said banks have started doing more background checks because they burnt their fingers in the unsecured loan business earlier.
“One way of doing this is through co-branded cards, because it means one of the partners has some relationship with the customer. But all banks are generally doing more checks, and the days of free cards at shopping malls are over,” she said.
Bharadhwaj, however, said that despite the heightened vigilance, the bank continues to be cautious on personal loans because credit cards have more “utility value”.
“We are only giving it to our savings account or salary account customers now. Over time, we can figure out how we go, but that is not our focus now,” he said.
Bharadhwaj said HSBC’s retail focus has changed from being just revenue-driven to being guided by both revenue as well as profit, which means cutting costs.
“Getting the right cost-to-income ratio is very important. India is not a low-cost country because the cost of rental is high and salaries are high because of attrition and competition. So if you don’t pay attention to the cost, it is difficult to drive the bottom line. We are taking more of a balanced view, making sure that costs are in line with revenue.”