BS :Somasroy Chakraborty |
However, in the current environment, corporate banking can no longer be the only focus area
Foreign banks' experience with the retail banking business in India has been rather painful.
Consider this: Two - Barclays and Royal Bank of Scotland (RBS) - of the four foreign lenders that entered this space in the past decade have exited some of their consumer banking businesses. Of the remaining two, FirstRand Bank is yet to achieve break-even, while Deutsche Bank turned the business profitable only in the last financial year.
"The decision to do retail banking in a non-home country is challenging as you are competing with other geographies and short-term revenue opportunities. Then, there is difficulty of achieving meaningful scale, organically or inorganically. Therefore, domestic banks are better positioned to attract low-cost deposits, which is an important success factor for retail," said Shinjini Kumar, director at PricewaterhouseCoopers.
However, in the current environment, corporate banking can no longer be the only focus area. India Inc is blamed for flexing its muscles - either refusing to borrow money or demanding restructuring of existing loans. Several Indian banks have now shifted their attention to small and individual borrowers to maintain the pace of business growth.
Foreign lenders that have retail presence in the country are expected to follow suit. "We have high aspirations for our retail bank and will continue to invest in mortgages and business banking. We believe there is significant headroom for growth in both the businesses," said Ravneet Gill, CEO of Deutsche Bank in India.
However, it isn't easy for most of these lenders to operate profitably. Barclays exited retail operations in India in December 2011, barely four-and-a-half years after starting it. It had incurred a loss of Rs 369 crore in 2010-11 and another Rs 88 crore in the next financial year in its consumer banking business here, data with the Reserve Bank of India (RBI) showed.
RBS, which took over the retail banking operations of ABN Amro in India as part of a global acquisition in 2007-08, announced a closure of a majority of its branches in the country this May. Three months later, the foreign lender said it would sell its business banking credit card and mortgage businesses in India to Ratnakar Bank.
FirstRand Bank and DBS Bank are yet to achieve break-even in their India retail operations.
While FirstRand started consumer banking business in 2012, DBS Bank has been active in this space since 2009.
Deutsche Bank remains the only foreign lender that has entered the space of retail banking in India after 2003 and been making a profit in that business. "In the retail space, Deutsche Bank's approach was calibrated. Certain core areas were identified and pursued, while we stayed away from other vectors," said Gill.
The German lender realised that without scale, it would not be able to make a profit in credit card operations and sold the business to IndusInd Bank in 2011. It has also refrained from offering vehicle financing and personal loans.
The strategy appears to work. In 2012-13, Deutsche Bank made an operating profit of Rs 22.8 crore in its India retail operations, compared to a loss of Rs 2.1 crore a year earlier. Its bigger rivals, Hongkong and Shanghai Banking Corporation (HSBC) and Citibank, saw their India consumer banking profit before tax declining during this period.
"We want to do the basic things right. There is no revolutionary thought process that will drive our retail banking growth. Our advances growth will be complemented by a sustainable deposit franchise. We are aiming for a 25-30 per cent CAGR (compound annual growth rate) in retail banking revenues," said Prashant Joshi, head of private and business clients of Deutsche Bank in India.
For Singapore's DBS Bank, the losses have been mounting in the India retail business. The losses increased from Rs 9.43 crore in 2008-09 to Rs 62.5 crore in 2012-13. However, the bank remains confident that it will be able to turn around and make the business profitable by March 2016.
"For us, the real focus on retail banking started only in 2009. Typically, it takes six to eight years for a consumer banking franchise to break-even. In the last four years, we have achieved meaningful growth in our retail business, especially in the fee income line. The CAGR growth in retail banking fees, primarily through third-party product distribution, during this period has been 72 per cent," said Rahul Johri, executive director and head of consumer banking group at DBS Bank in India.
The lender is currently investing in strengthening distribution and revamping existing branches for superior customer experience. The bank's retail customer count has increased from 3,639 in March 2009 to 20,459 in March this year.
Bankers said due to restrictive branch licensing policy, foreign lenders need to be selective in choosing businesses to ensure their retail banking franchise in India becomes profitable. "We have been realistic in gauging the market. In the last two to three years, we have been working on refining our retail banking model. Though small we are nimble," said Rajiv Rai, chief operating officer of Deutsche Bank's retail operations in India.
