BackRBS to end operations in India, 24 other countries
RBS Business Services, the bank’s global back office in India that employs 7,100 people, will be retained
Premium(AFP)
Mumbai: Royal Bank of Scotland NV (RBS), the UK’s third largest bank with $1.7 trillion in assets, will shut down operations in India and 24 other countries to cut costs and improve returns for shareholders, the bank said after announcing its 2014 annual results on Thursday.
RBS will, however, retain its back offices in India and Poland, it said in a statement that accompanied the results, without giving any details.
According to the bank’s website, RBS Business Services Pvt. Ltd, the bank’s global back office in India, employs 7,100 employees. Besides these employees, the bank also has 800 people employed in its 10 branches and institutional and corporate banking business currently operational in India.
A bank official said the RBS announcements mean the bank's operations in India will slowly be wound down or put up for sale in the coming months.
“The best case for the employees of the bank will be that they find a buyer for the business here, otherwise there will be job losses. The bottomline from this announcement is that RBS as an entity will leave India. But how and when it will be done are not clear right now. What will happen to the Indian operations, which includes corporate and investment banking and some retail banking, will all be decided by the bank’s headquarters in London," the official said on the condition of anonymity.
RBS inherited branches in India after the global acquisition of Dutch bank ABN Amro Bank NV in 2007 by a three-bank consortium that also included Fortis Banque NV and Banco Santander SA. The acquisition, however, proved costly for the UK bank, which needed a £46 billion ( ₹ 4.43 trillion) bailout by the British government after the global financial crisis in September 2008. RBS has since been winding down its operations in India, and has decided to steer away from loans to individuals and small enterprises.
The total assets of the bank in India shrank to ₹ 20,366 crore in financial year 2013-14 from ₹ 26,360 crore in 2012-13. In 2013, the bank shut 21 of its 31 branches in India and later divested its loan exposure to individuals and small and medium enterprises (SMEs) to Ratnakar Bank Ltd (RBL).
On Thursday, replying to a query from Mint, an RBS spokesperson said changes announced on Thursday will make RBS “a smaller, more focused bank". “As part of these changes, we have taken the decision to sell or run down our CIB (corporate and institutional banking) businesses in APAC (Asia Pacific), of which India is a part."
In a statement on Thursday, RBS said it will focus on “more sustainable business", mainly in the UK and western Europe “supported by trading and distribution platforms in the UK, US and Singapore."
The shutdown in India is part of the bank’s attempt to deal with larger global worries, said Adarsh Parasrampuria, vice-president at Nomura Financial Advisory and Securities (India) Pvt Ltd. “RBS is exiting 65% of the countries it operates in and India is one of them. It’s not that they are not happy with business here but the fact is that capital is an issue which has forced them out of here," Parasrampuria said.
In a post-results webcast RBS chief financial officer Ewen Stevenson said he expects 2015 to be “more challenging financially" as the bank’s costs go up mainly because of likely fines in the US. “After these changes, we will broadly have half of our products and half of our markets business," Stevenson said.
UK Financial Investments Ltd, an arm of the UK government, owns 80% of the bank’s shares. The lender is under pressure to ensure higher returns to its shareholders and cut costs.
The change in the bank’s strategy follows the bank posting a £3.4 billion loss in 2014, its seventh consecutive year without profit, mainly due to a £4 billion write-down on its US arm, Citizens Financial Group Inc., and a further £2 billion on tax charges. “CIB will reduce its geographical footprint to approximately 13 countries, compared with 38 at the end of 2014, though RBS will also retain its back office operations in Poland and India. In addition to its main distribution and trading hubs in the UK, US and Singapore, RBS will remain present in a number of Western European countries with coverage teams," RBS said.
The changes will see the bank’s CIB business pare both its balance sheet and assets globally. “RWAs (risk-weighted assets) will be reduced by 60% from £107 billion at 31 December 2014 to £35-£40 billion in 2019, with a reduction of more than £25 billion targeted in 2015. Third-party assets will be reduced from £241 billion at the end of 2014 to £75-£80 billion in 2019," RBS said. The bank’s balance sheet has already shrunk in India and other emerging markets such as China, Russia, Turkey and South Korea. RBS’s India balance sheet has shrunk to £2 billion from £3.7 billion mainly because of “reductions in corporate lending, particularly in the oil and gas, and mining and metals sectors, and in lending to banks, largely trade finance," the bank said. “The reductions in part reflected increasing capital requirements and sales of low-yielding assets."
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