Morgan Stanley gets RBI nod for India branch

Mumbai: US-based Morgan Stanley has received the go-ahead from the Reserve Bank of India (RBI) to open a branch in India, which will allow it to accept deposits from the public and compete with larger regional rivals Citibank N.A. and JP Morgan Chase and Co., as first reported by The Economic Times on Wednesday

“Morgan Stanley’s spokesman confirmed that the firm has received in-principle approval for a banking licence from RBI,” the bank’s public relations agency said in an email.

There was no official statement from Morgan Stanley. A senior official from the bank independently confirmed that it had received a licence from RBI on Tuesday.

“We have got it, but under what form and conditions, is yet to be known. There has been no internal announcement regarding this and hence we are a bit reluctant to share information. But it’s a big positive for us and gives us an opportunity to add new products such as lending, line of credit, besides the ones we already have such as wealth management,” added this person, who spoke on condition of anonymity.

In India, just like in the US, Morgan Stanley is known more for its investment banking division, but it also has an asset management, institutional brokerage, private equity and wealth management business.

The banking licence will mean that Morgan Stanley will have to merge its wealth management business with its local banking unit.

It applied for a banking licence in the end of 2009, another bank official said. “We had first applied for a primary dealership licence in July 2008 which we got in July 2009. The banking application followed after that,” added this person who, too, did not want to be identified.

A primary dealership licence allows foreign banks to buy and sell government securities. Morgan Stanley’s US-based rival Goldman Sachs Group Inc. is yet to hear from RBI regarding its application, dating back to 2009-10, according to the spokesperson.

Citibank is the largest of the US banks in India with 42 branches. JP Morgan Chase has had one branch in Mumbai since 2007.

Morgan Stanley’s first branch will likely come up in Mumbai, the first official said.

The licence was given “in-principle” nod, which means it is dependent on Morgan Stanley’s recruitment of staff, readiness to open a branch, installation of technology, and the clearance of a nominated chief executive by RBI, a third official from Morgan Stanley said.

The bank may also have to get the go-ahead from the US Federal Reserve before that, added the person who didn’t want to be identified.

Morgan Stanley is the latest among global banks to start single branch operations in India. In the past year National Australia Bank Ltd (NAB), Dutch bank Rabobank Nederland and China’s Industrial and Commercial Bank of China Ltd (ICBC) were among those that opened their first branches in the world’s second fastest growing major economy.

NAB was the most recent to do so and its decision to do business in India was to benefit from the rising trade between India and Australia, especially in the resources and energy sectors, CEO Cameron Clyne said in a February interview.

Rajeev Mehta, research analyst at India Infoline Ltd (IIFL), said it was unlikely these banks with single branches would focus on retail banking.

“They will do more of wholesale banking business and cross-sell products to complement their business. Morgan Stanley is known for its investment banking so I don’t think it will pursue the retail business actively. Even Standard Chartered Plc and Hongkong and Shanghai Banking Corp. Ltd (HSBC) have not been able compete with the local mid-level banks despite being in India for so many years,” Mehta added.

RBI clears 12-18 branch licences for foreign banks each year, which means many don’t get permission to open new branches for years together. Germany’s largest lender Deutsche Bank AG said in March that it had received RBI’s approval to open two branches after two years. The last time HSBC received approval for a branch was in 2009.

joel.r@livemint.com