Standard Chartered To Stop Lending to External Customers
Standard Chartered Bank wants to slow down the growth in its personal loan portfolio and focus instead on cross selling to existing customers rather than acquiring new ones. The bank is to tighten its unsecured lending procedures, which should have the effect of producing better quality assets (debtors).
Foreign Banks operating in India, in their rush to obtain market share, and grow their loan portfolios in order to meet ambitious growth targets, have more often than not, compromised on credit quality and as a result there is a higher than normal delinquency ratio. These Indian subsidiaries of multinational banks are in fact tiny when compared to global peers, the level of defaults manageable and even if they posed a problem, the parent bank would easily be able to recapitalize. So the problems being faced by foreign banks in India are nothing like the problems affecting lenders in the US and Europe.
Large numbers of delinquencies has meant that foreign banks have been charging up to 50% penal rates of interest on unsecured lending like personal loans and credit card debt. They have been arguing that their cost structures are the reason for the high penal rates of interest. In reality they adopted a less than prudent approach to acquiring new customers, and this has resulted in high default or delinquency rates and a decline in profitability.
Looking for Quality not Quantity
The move by Standard Chartered will affect about 200 of its own employees, the bank preferring to use its own sales force rather than adopt the direct sales agent method used by other banks. Standard Chartered’s change in strategy follows closely after ICICI Banks decision to market auto loans for two wheelers only to its existing customers, and is seen as a method of dealing with the rising number of defaulting and delinquent borrowers in the unsecured segment. The delinquency ratio in the unsecured loan portfolio of banks stands at about 5-6%, compared to 2% of the banks entire loan portfolio. Initially, the rise in delinquencies for most banks was seen in small-ticket personal loans. However, rising interest rates and collection problems have also affected other parts of most retail banks unsecured portfolios.
Standard Chartered Bank head of consumer banking Shyam Srinivasan said: “Standard Chartered continues to be focused on credit cards while focusing on the established existing customer base, and new bank customers in targeted segments. On personal loans, given the market cycle at this point, we will offer the product only to existing customers of the bank.”
Both foreign and domestic private sector banks have cut down their disbursements in the personal loan business and also tightened their lending norms on the credit card side. Standard Chartered is looking at selling personal loans only to its pre-qualified existing customer base, with clear track records. The bank has an internal customer-base of 2.2 million, which includes credit card, SME, saving and current account customers amongst others.
Recently, the bank has also slowed down on adding to its credit card portfolio as well. In recent times, delinquencies on credit cards have been around 12% on average for most players. Sources within the bank suggested this number was much lower for Standard Chartered.
At present, 60% of StanChart’s personal loan customers are external customers, currently the bank has 1.4 million credit card accounts. Bank officials said the credit card segment was an important business, which it would not exit.
The bank has also increased income criteria for its credit card clients. It now focuses only on the upper-middle and affluent customer base with base annual incomes of over Rs 500,000. A year and a half ago, this amount was only around Rs 100,000. Another product area where the bank is keen to market to its internal customer base is the Smart Credit facility, by which customers can take overdrafts on their accounts. The bank also continues to focus on mortgages, which is still seen to be growing strong. Most players are likely to take similar steps as delinquencies continue to grow.
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[...] week we reported that Standard Chartered was no longer making unsecured loans to customers who were not long term clients …. In fact as an external customer it is no longer possible to obtain a credit card or personal loan [...]