HSBC India profit up despite higher provisions

Mumbai: Hong Kong and Shanghai Banking Corp Ltd (HSBC)'s profit before tax in India increased 2% in 2020 despite a rise in provisions for bad loans mainly due to higher income from its global banking and markets division.

Profit before tax from India increased to $1.02 billion in 2020 from $1 billion in 2019 even though the group net profit fell 30% to $6.01 billion due to higher provisions for loan losses post Covid 19.

India was the third largest contributor to the bank's profit before tax behind Hong Kong and China helped by a 11% rise in profit before tax from its global banking and markets (GBM) division which services large corporations and also includes treasury income. Profit from the GBM increased to $593 million in 2020 from $533 million in 2019.

A 11% increase in profit from its corporate centre which earns revenues by providing services to the bank globally also pushed up the regional profit.

These two businesses made up for the 7% fall in profit from its commercial banking business and a huge 76% decline in profit from its wealth management business showing the impact of the Covid 19 pandemic on smaller enterprises and individual accounts.

India CEO Surendra Rosha however said that the bank's revenues in India increased 17% on a constant currency basis led by a 20% growth in wholesale and commercial banking end though revenue from the wealth management and personal banking business declined as customer activity was impacted due to Covid 19.

Just like it parent, HSBC had to hike provisons for expected credit losses (ECL) on loans that could go bad. The bank made $94 million provisions on corporate loans in 2020 almost double the $50 million it had set aside in 2019.

Provisions for personal loans also increased two times to $54 million from $26 million in 2019.

Rosha said he expects the provisions to come down closer to its long term average next year due to the economic recovery expected in India.

"The provision reflects the economuc situation post the pandemic. But going forward we see the broader Indian economy will recover as we see in data like electricity consumption so we will move towards the average provision levels of the last few years from the elevated provision levels we see right now," Rosha said.

India remains core market for the bank's growth strategy and HSBC has made provisions to tide over the challenges posed by Covid 19.

In its investor presentation onits website HSBC identified India together with China, Hong Kong and Singapore as a growth driver of future growth. It wants to expand its transaction banking, foreign exchange, insurance and asset management business and increase focus on overseas Indians to tap into the large remittance market.

"We see India as an preferred destination of investment for both portfolio as well as foreign direct investment aided by the reforms in the last 18 months like lower corporate taxes and labour reforms," Rosha said.

In India the bank's total whole loan book including to small and medium enterprises rise to $10.2 billion in 2020 from $9.2 billion in 2019 while personal loans fell marginally o $1.47 billion from $1.57 billion.

Total deposits increased to $20.19 billion from $14.93 billion in 2019 in line with other domestic lenders.

Globally the bank's profit after tax fell 30% to $6.1 billion due to higher expected credit losses and lower revenues.

Net interest margin (NIM) fell 26 basis points to 1.32% in 2020, from 1.58% in 2019, due to the impact of lower global interest rates.