Hit by defaults, foreign NBFCs shut branches
RISING delinquencies have taken their toll on the country's consumer finance companies. A majority of non-banking finance companies (NBFCs) with foreign parentage are moving aggressively to close down their branch networks.
GE Money Financial Services, the consumer finance arm of General Electric, is said to have slashed its branch network by more than half, while Standard Chartered Bank-promoted NBFC — Prime Financial — is now left with barely six branches from a peak of over 50, according to bank officials.
Defaults have been on the rise, primarily due to a bout of interest rate hikes and a crackdown on collections. It is not just in consumer finance that companies are taking a hit. For instance, banks are also now facing the heat on the retail business front. HSBC, which has suffered a huge loss in its credit card operations because of rising defaults, is now going slow on credit cards and personal loans.
GE Money had close to 186 branches in 120 cities. Over the past few months, the NBFC has been restructuring its operations in the country.
According to industry sources, the NBFC has reduced its branch network to around 80 and plans to bring it down to around 50 over the next few months. Early this year, the firm was scouting for a partner for its personal and home loan portfolios. However, the process had to be called off, since the firm was unable to obtain the right valuation.
When contacted, GE Money president and CEO Iqbal Singh said: "In India, the entire industry is facing challenging conditions, thanks to rising delinquencies due to higher interest rates. The current market realities have made it necessary for us to reassess our business model."
Banks' retail operations also come under pressure
HE added: " In the immediate term, we are focusing on reducing operating expenditures and improving operating efficiencies as well as building a more focused business in terms of product offerings and consolidating in cities where we have a competitive advantage and scale. GE Money is committed to a growth model in the long term in India."
Delinquencies across the NBFC segment have been climbing because of rising interest rates and a crackdown on collections. Many firms have now started looking at niche segments and the top end of the market while increasing fee-based revenues.
Sources said GE Money is looking at shutting its branches in small towns and cities, since it does not make sense to spread out the branch network. Citi Financial had earlier reduced its branch network from 450 to around 325 and had restructured its operations.
Mr Singh added: "We are currently reviewing our operations in tier 3 and select tier 2 cities. Their contribution to our overall business volume is limited and the impact of pruning the same would be minimal. The focus is to build scale in the current products in cities where we have a competitive advantage. We are also evaluating investments in alternative service channels such as the internet so as to ensure that the customers will not be materially affected."
The new structure seems to have helped the NBFC, since results have surpassed expectations, said officials. As on March 31, 2008, the firm had reported a net profit of Rs 9.4 crore against Rs 10 crore in the previous fiscal despite the adverse market conditions.
Prime Financial has also drastically cut its branch network. The consumer finance arm, part of Standard Chartered Investments, was launched in August 2005. Unlike other NBFCs, Prime Financial has not been very aggressive in expanding branches. Over the past few months, the NBFC has also stopped booking new loans. The existing branches are used for servicing only the old loans.
According to StanChart group officials, the group is re-evaluating its options relating to this business. However, the NBFC's wholesale banking business still continues.
It's not just NBFCs, but banks, too, are facing the heat. HSBC is said to have taken a hit of around Rs 200 crore from the credit cards space due to rising delinquencies. Though the bank is not exiting from its credit card business, sources said it has cut down new card issuance.
Currently, the bank has issued around 2.8 million cards. The sales force has been transferred to other departments such as retail products and collections. The bank has cut down its lending on STPL and personal loans.
When contacted, HSBC officials said: "The performance of personal financial services business has been reflected in the group's interim results declared in August 2008. We have not laid off any staff. Market conditions being dynamic, we assess our businesses and our business strategy on an ongoing basis. If, as a result, staff are freed up from one activity, the effort is to redeploy them into other businesses and activities. We are not exiting the personal lending or cards business."
The bank has cut down its lending for both STPL and personal loans. On the personal loans space, it is now concentrating more on internal customers.
george.smith@timesgroup.com
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