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HSBC plans to step up India mortgage lending

Started by sajiv, Aug 14, 2009, 09:40 PM

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sajiv

HSBC plans to step up India mortgage lending

HSBC will step up mortgage lending in India after keeping to the sidelines for the past 18 months, and plans a cautious resumption of growth in consumer finance after unsecured loans soured across the industry, the global bank's country chief executive said.

Stuart Davis, who was appointed to his new position in April after heading the London-based lender's Australian operations, said the bank was seeing signs of increased loan demand in India, although the basis for that demand remains unclear.

"Is it simply the result of restocking and a catch-up for investment that hasn't been done over the last 6 to 12 months, or is it part of increased economic activity?" he said on Friday.

"My personal view is here in India it's both. Perhaps in the rest of the world it's not so clear," he said in an interview in the firm's country headquarters in South Mumbai.

India is seeing a resurgence in industrial activity and consumer demand after economic growth slowed last year to 6.7 percent following three straight years of at least 9 percent.

But bank loan growth is averaging just above 15 percent compared with 27 percent in late 2008 and 30 percent in the year through March 2008, after companies hit by the global financial crisis slowed expansion and banks curbed retail lending to rein in bad debts.

RETURN TO MORTGAGES

Indian home buyers are returning to the market after more than a year of subdued activity, lured by a 25-40 percent drop in prices. Demand has also been spurred by smaller projects that have raised affordability.

Davis said HSBC is looking to rebuild its mortgage portfolio in India.

"We're keen to not only get back to our previous levels but expand that quite strongly," said Davis, who began his career with the bank in 1981 in its investment banking arm in Australia.

Of HSBC's $5.2 billion India loan portfolio at the end of June, $997 million was in residential property, a 27 percent drop from a year earlier. Overall lending in the country was down 31 percent from a year earlier as HSBC shrank its global loan book.

"The property market is more balanced, the supply and demand equation and the affordability is much more balanced than what it was two years ago, when on the back of the boom conditions prices of property went ahead of themselves," Davis said.

CONSUMER PAIN

HSBC's India business saw a 46 percent drop in net profit for the first half of 2009 to $201 million, as losses on retail lending more than doubled to $124 million.

Banks in India slashed unsecured consumer lending after personal loans and credit card dues turned bad. HSBC discontinued consumer finance loan origination in India towards the end of last year.

ICICI Bank, India's No.2 lender and once the most aggressive bank in the segment, has almost stopped unsecured lending and is cutting the size of its retail portfolio.

"Certainly, like everyone else we've felt a bit of pain on the unsecured retail asset side, and we're just working our way through that," Davis said.

"We think we're over the hump and so we will be at some time looking to cautiously grow our portfolio again," he said.

He said HSBC would build consumer lending through its branch network, including its InvestDirect brokerage, and would only use direct sales agents sparingly if at all.

"Our focus will be more on sustainable growth rather than the fast growth which you have when you start an initiative like cards or personal loans," he said.


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