CitiFinancial, a part of Citi group's Indian operations and a consumer finance non-banking finance company (NBFC) has reported a loss of Rs 235 crore for the half fiscal ending on September 30th.
The loss has been attributed to the higher defaults in its loan portfolios and excessive leverage by borrowers from the past few years. This loss is measured to be one amongst the prime fall on the balance sheet of an Indian NBFC.
The Capital Adequacy Ratio (CAR) of the NBFC has also declined to 9.85% from the mandatory level of 10%. In March, 2008 CitiFinancial had a CAR of 11.56%.
An official from Citi said, "CitiFinancial's results for the half year ended on September 30, 2008, reflect an industry-wide phenomenon, wherein unsecured lending has witnessed an overall decline in portfolio quality due to a combination of factors - rising inflation, and consequently an increase in the cost of funds, customer overleverage and therefore, rising delinquencies, and a relatively higher risk segment of new-to-credit customers."
For the fiscal year 07, CitiFinancial had posted a remarkable profit of Rs 222 crore and since then the company's profits have been coming down. For fiscal year 08, the net profit came down to Rs 19 crore. Sources from the industry feel that the firm is likely to post more losses in the coming quarters.
CitiFinancial is one of the highest-capitalized foreign NBFCs in the country with Citi group's investment of over $300-million capital into the NBFC until now. The additional capital would help the firm to reach to its new CAR of 12% and 15% by March 31st, 2009 and March 31st, 2010 respectively.
Citi group is currently involved in modifying the business of CitiFinancial in order to make lower-cost, higher-touch and longer-term relationships with customers. It is working on the reconstruction of its small-ticket personal loans, which has been the major reason for the loss.
A spokesperson from Citi said that CitiFinancial is an important part of Citi group in India. He further said, "Citi will ensure that the vehicle is well-capitalized to meet our business requirements and plans."
Another NBFC of Citi group in India named Citicorp Maruti Finance, a joint venture of Citi and Maruti has also reported losses for the period ending September 30th. The firm has therefore stopped to increase its business for now.
Citi's net credit loss in India together from consumer finance and credit cards business in the third quarter was 5.78%. The group is planning to infuse additional capital of $100 each in the coming two quarters. But the group needs to take permission from US regulators to bring in this capital into the country.