Mumbai: The Hongkong and Shanghai Banking Corp. Ltd, or HSBC, is set to acquire the retail and small and medium enterprises business of Royal Bank of Scotland Plc, or RBS, in India, China and Malaysia.
HSBC entered the bidding race for select Asian assets of RBS in October after talks between Standard Chartered Bank Plc and RBS broke down over differences on the valuation of assets.
According to an RBS official in India, both the banks have already signed the deal and the actual acquisition depends on regulatory approvals in three countries.
RBS has already approached the Indian central bank for approval. The key to the success of the Indian part of the acquisition is the Reserve Bank of India (RBI) clearance for transfer of RBS branch licences to HSBC.
RBS has 31 branches in India and employs 10,000 people, following its 2007 acquisition of the Asian operations of ABN Amro Bank NV. ABN Amro continues to conduct business in India under its original name despite the RBS takeover. That acquisition was made through a consortium, along with Fortis group of the UK and Banco Santander SA of Spain. HSBC, which had an asset base of Rs94,620 crore in March, operates through 47 branches across India. It has three more branch licences granted by RBI.
Citibank NA is the largest foreign bank in India with an asset base of Rs1.05 trillion in March, followed by Standard Chartered Bank with Rs97,492 crore.
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In June, RBI had declined to transfer RBS branch licences to a prospective buyer. The banking regulator based its decision on the fact that the proposed transaction is a portfolio sale and not a bank buyout.
“We have signed a deal to sell our retail and small and medium enterprises business in India, China and Malaysia to HSBC,” a senior RBS official told Mint on condition of anonymity as the proposal is yet to receive the regulator’s approval. “We have sent the India proposal to the Reserve Bank of India for approval,” the official added.
RBI spokeswoman Alpana Killawala said the central bank has no information regarding the deal.
HSBC spokeswoman Malini Thadani declined to comment.
Responding to an email query, Vasantha Kumar, head of marketing and communications, ABN Amro Bank, said: “RBS is in ongoing discussions for the remaining retail and small and medium enterprises assets it has decided to sell in Asia and will make further announcements, as appropriate, in due course.”
RBS is selling businesses designated as non-core in select markets to raise funds even though it will continue and grow the corporate and wholesale banking activities of ABN Amro.
Madan Menon, country head, global banking and markets, ABN Amro Bank, said, “Post the sale, the RBS group in India will focus on its core business—corporate banking, markets and treasury, equity capital markets, merger and acquisitions, syndicated loans, debt capital markets, trade finance and cash payments... For the retail and SME (small and medium enterprises) businesses, India will be the third largest employer within the RBS group in the world.”
In February, RBS declared that it would move its India retail and commercial banking operations, which employ 2,500 people, into a for-sale, non-core division. Morgan Stanley is advising RBS on the sale.
In August, Australia and New Zealand Banking Group (ANZ) acquired RBS retail and commercial banking operations in Taiwan, Singapore, Indonesia and Hong Kong for around $550 million (Rs2,569 crore). It also acquired the onshore global banking and markets (GBM) and global transaction services (GTS) operations in the Philippines, Vietnam and Taiwan (excluding securities).
The talks with Standard Chartered Bank failed as the latter was not willing to offer a little more than $100 million for the retail and commercial banking assets of RBS minus the branch licences.
In fact, Standard Chartered worked on two sets of valuations—one exclusively for the assets and the other for the assets and branches. This is because there was no guarantee that RBI would permit the transfer of branch licences.
“The entire deal rests on the transfer of branches and it depends on what stance RBI takes,” said an investment banker on condition of anonymity as he is associated with the deal.
“The quality of the consumer banking assets is bad hence the only attraction for HSBC is the branch network that it could acquire through this deal. RBS is trying to convince the Indian banking regulator to transfer some branch licences to the prospective buyers so that its existing clients receive uninterrupted service,” added the same banker.
In India, the branch network plays a critical role when it comes to valuation as foreign banks do not find it easy to secure licences even though RBI is quite liberal in granting them. Under World Trade Organization norms, RBI is required to issue 12 branch licences annually. It typically issues around 18 licences every year but foreign banks want more.
ABN Amro Bank’s profits for the fiscal year ended 31 March in India dropped 93.09% to Rs19.39 crore. The bank has written off debt worth Rs962 crore in fiscal 2009, an almost three-fold increase from the previous year’s Rs360 crore. Its consumer banking operations posted an operating loss of Rs230.77 crore at the end of March. The size of its consumer banking assets is not known.
HSBC India’s net profit for the fiscal year ended March 2009 rose 8% to Rs1,291 crore.
Graphics by Sandeep Bhatnagar / Mint