Mumbai: The beleaguered Royal Bank of Scotland Group Plc. (RBS) is actively scouting for a buyer for its retail and commercial banking assets in India.
Distress sale? RBS Group chairman Philip Hampton. Bloomberg
RBS Group chairman Philip Hampton met the Indian banking regulator on Thursday to formally start the exercise. It has given a mandate to Morgan Stanley to look for a buyer for its retail and commercial banking assets across Asia.
RBS, 70% owned by the UK government, announced a record £24.1 billion (Rs1.73 trillion) loss for fiscal 2008 in February, the biggest in British corporate history. It is selling its non-core businesses in select markets to raise funds.
“India is our core market and a very critical part of our business. It will continue to remain so. We will strengthen our wholesale and investment banking businesses here but sell the retail and SME (small and medium enterprises) businesses,” Hampton said.
In India, it is present through 31 branches and has 10,000 employees following the acquisition of the Asian operations of ABN Amro Bank NV in 2007.
According to Hampton, RBS would not need so many branches for its wholesale, investment banking and wealth management operations—the three businesses the bank will not sell. But he declined to say whether it will sell branch licences or surrender them.
These branches are critical for the valuation of India assets of RBS as foreign banks find it difficult to secure branch licences here. Under the World Trade Organization norms, the Reserve Bank of India is expected to issue 12 such licences a year. It issues many more licences but they are never enough as most foreign banks want to expand their business in Asia’s third largest economy, which was growing at about 9% till last year.
“It all depends on the regulator. We want to complete the sale within a reasonable time,” Hampton said. “We are open to all (suitors). It could be an international bank which is already present here; an international bank which is seeking a re-entry into India or even a local private bank. It could be a bank which has presence in retail business or is not present but wants to start retail business.”
Australia and New Zealand Banking Group Ltd (ANZ), Hongkong and Shanghai Banking Corp. Ltd and Standard Chartered Bank Plc. are reportedly in the race to acquire ABN Amro’s retail and commercial operations here. Kotak Mahindra Bank Ltd, too, is in the race.
The bank’s loan assets in India grew 28% to Rs36,617 crore in fiscal 2008, from Rs28,518 crore in 2007, but India operations reported a 27% decline in net profit for 2007-08 to Rs280.60 crore, from Rs385.30 crore in the previous fiscal year.
Hampton said the wholesale and investment banking businesses which include corporate banking, treasury operations, cash management, export and trade finance, account for 70% of its business in Asia Pacific. “Our long-term growth prospects are in these segments and India is very critical here. We can’t have full competitive strength in every market. We can’t be everything, everywhere,” he said.
The wholesale and investment banking businesses, along with wealth management, employ about 300 people and the bank’s business process outsourcing and information technology related units employ another 7,500.
The Asia business reported an operating loss of £113 million in 2008, against an operating loss of £20 million the previous fiscal. The British bank, in an analyst presentation, had said: “The bank saw good growth in the private banking and cards and consumer finance business, while increased business investment was driving cost growth.” It, however, added that “the?increased provisioning was related primarily to Indian franchise.”
Impairments in the Asia retail and commercial banking increased by 44% to £171 million, reflecting an increase in provisioning levels across a number of consumer finance markets in the region.
With economic growth slowing down, banks in India are seeing rising defaults in their consumer finance business and almost all of them are shrinking their retail assets such as credit cards and consumer loans.