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Standard Chartered has the highest proportion of bad loans on its books of any of the top foreign banks in India, a reflection of its decision to hang on to a legacy of soured lending to local infrastructure and energy projects in the hope of repayment.
NPA ratio
The Indian unit of the London-based lender had a gross non-performing asset ratio of 10.6 per cent in the quarter ended September 30, nearly triple the level of DBS Group Holdings, according to data received from the Reserve Bank of India in response to a Right to Information request.
Because Standard Chartered has taken provisions against the bulk of the bad loans, given out before the current CEO Bill Winters took over in June 2015, any resolution should flow directly to the bottom line.
“The stressed asset pile remains high in Standard Chartered’s India unit as they are still betting on recoveries of these written-off legacy assets,” said Kranthi Bathini, an analyst at WealthMills Securities. “If they manage to recover at least part of this soon, it will give a good earnings kicker.”
The bank’s gross bad loans amounted to $1.2 billion, according to the RBI data.
On a net basis, after taking provisions into account, non-performing assets amounted to only 0.31 per cent of net advances, the RBI data showed.
The bank evaluates all options and arrives at a final decision based on the best possible business outcome, a Standard Chartered spokesperson said in an e-mailed response.
It follows a conservative provisioning policy with regard to stressed assets.
In contrast, DBS decided to unload much of its bad-loan legacy in India, cutting the debt pile by about 40 per cent in a year by selling non-performing assets, the Singapore-based bank said in 2015. That was a deliberate attempt to put the episode behind it, according to CEO Piyush Gupta.
“It takes a lot of effort to manage a bad book,” Gupta said in a recent interview. “You can’t keep your management team burdened down with the problems of the past.
“It is much more important to build a winning psychology, put the problems behind you and get on with business.”
Other foreign lenders in India brought down their gross bad loan ratios by selling loans at deep haircuts, said Bathini.
Seeks repayment
Standard Chartered does not disclose the names of the Indian companies which owe it money.
But court documents show it is seeking repayment on ₹3,560 crore of loans to Essar Steel India and ₹600 crore from food manufacturer Ruchi Soya Industries. Together, those two exposures would account for more than half of the bank’s total bad loans.
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