London/Mumbai: HSBC Holdings said it would buy the Indian retail and commercial banking businesses of Royal Bank of Scotland as the part-nationalised UK bank continues its retreat from overseas markets.
HSBC said it would pay a premium of up to $95 million over the tangible net asset value (TNAV) of the businesses when the deal is completed, probably in the first half of next year.
The price will be reduced if bad debts in the business increase during the next two years.
The deal could end up being neutral or even costing RBS, as the TNAV could be near neutral or negative and a deterioration in bad debts in the next two years could wipe out the premium.
Overseas lenders have been stepping up their presence in India, a fast-growing market that restricts foreign participation in banking.
This week, Japan’s Sumitomo Mitsui Financial Group agreed to buy 4.5% of mid-sized Indian lender Kotak Mahindra Bank for $296 million.
HSBC, Standard Chartered and Citigroup have the biggest presence in India among foreign lenders.
RBS, 83% owned by the UK government, has sold a string of small non-core businesses in recent weeks as it refocuses on its key strengths.
It is reversing a decade-long international expansion drive and has raised over $2.5 billion from exiting or selling over 20 businesses in the last 14 months.
It will still have a presence in Asia’s third-largest economy.
“Our commitment to our wholesale and investment banking, transaction services and private banking businesses in India remains unchanged,” said Madan Menon, RBS’ India head of global banking and markets.
HSBC is buying operations from RBS with 1.1 million customers, over 1,800 staff and 31 branches. The portfolios had a gross asset value of $1.8 billion at the end of March.
HSBC currently has about 2 million customers and 50 branches across 29 cities in the hard-to-enter Indian market.
India’s central bank limits the participation of foreign lenders in the country, but many overseas banks have been looking to enter or expand their presence in a country on track to grow by more than 8% this year.
Last week, Dutch lender Rabobank moved a step closer to setting up its own banking unit in India by cutting its stake in midsize local lender Yes Bank.
Goldman Sachs has applied for a banking licence in the country, while Australia and New Zealand Banking Group is planning a return to India after a 10-year absence.
UK-based Standard Chartered recently raised $530 million in the first-ever issue of Indian depositary receipts (IDRs), move that was less about raising capital than about boosting its profile in India.