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FirstRand Bank, South Africa’s second largest bank, to exit India after 12 years

FirstRand Bank, South Africa‘s second largest bank with $118 billion in assets is the latest foreign bank to completely exit India ending almost 12 years of trying to build a local franchise in the country.

The news was broken to FirstRand staff via a video conference on Tuesday. In response to a query from ET India CEO Rohit Wahi shared a statement confirming the shut down of its only branch in Mumbai and a retreat into a limited representative office. The move is likely to impact at least 50 jobs in India.

“Following a review of FirstRand’s strategy in India the decision has been taken to convert the current branch to a representative office. FirstRand will be engaging with the regulators on this proposed change,” the statement said. Wahi declined to comment further.

FirstRand’ exit is the second retreat by a foreign lender in India within a week after US giant Citibank announced plans to sell its consumer banking business in 13 markets including India late last week.

FirstRand’s exit though not as big as the 120 year old Citibank’s again sheds the spotlight on foreign lenders retreating to their home markets.

The South African lender started operations as late as 2009 and started lending to individual customers and small and medium enterprises only in 2012. The plan was to expand further, add more branches and also eventually become the third bank in India to start a wholly owned subsidiary after Singapore’s DBS Bank Ltd and State Bank of Mauritius (SBM) but those plans never materialised due to lack of scale and rising NPAs in the country.

In October 2016, it decided that it will focus on corporate and investment banking in India, scaling back its ambitions in retail and SME lending and with it plans to start a subsidiary in the country.

However, tough competition, lack of scalable profits and higher risks due to the economic disruption caused by the pandemic has led to a total retreat, said a person familiar with the bank’s thinking.

“They thought they would be able to make some returns by to higher rated corporates but failed to take into account the thin margin and tough competition. A 4% risk adjusted return did not make a sense in this market. They also lost money in loans given to fallen infrastructure conglomerate IL&FS which was the final nail in the coffin,” this person said.

FirstRand’s exposure to IL&FS is estimated to be Rs 35 crore which though miniscule to the Rs 1 lakh crore loans due from the company was a large chunk of the bank’s loan book.

Results on the bank’s website showed that its total book was at Rs 420 crore at the end of March 2020 up from Rs 405 crore a year ago.

“The bank had expected some recovery of loans but it has not been able to get much from the IL&FS process,” this person said.

FirstRand’s profit increased to Rs 5.37 crore in the year ended March 2020 from Rs 1.42 crore a year earlier. However, provisions and contingencies increased more than three time to Rs 21 crore from Rs 6 crore indicating the stress in the bank’s books.

The bank’s net NPAs had risen to 5.18% of loans in fiscal ended March 2019 from next to nothing in March 2018.

These loans were all written off in fiscal 2020, the results showed.

Income was dependent on treasury which made Rs 115 crore in revenue in March 2020 up from Rs 89 crore in March 2019, even as revenue from corporate and investment banking stayed at Rs 46 crore.

In the statement shared by Wahi FirstRand acknowledged that it has proved difficult to build a meaningful in-country franchise in India. Wahi has been CEO since 2013 and spearheaded the bank’s charge into retail and SME and also oversaw the retreat later.

“The Indian business has successfully focused on facilitating trade and investment activity in the Indo-Africa corridor. This has been a key enabler to FirstRand’s investment banking business’s strategy to grow its offerings on the broader African continent, but which only requires a representative office to execute,” FristRand said.

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