Mumbai: Hongkong and Shanghai Banking Corp. Ltd (HSBC) is set to acquire the retail, and small and medium enterprises (SME) business of Royal Bank of Scotland Plc (RBS) in India for a premium of $95 million (Rs444 crore) over the net asset value of the business, which has not been set yet. The price will be subject to clawbacks depending on losses in unsecured lending in the two years after the deal is completed.
“The acquisition, which is subject to regulatory approvals, is expected to complete in the first half of 2011,” said HSBC in a media statement. RBS is present in India through its acquisition of ABN Amro Bank NV’s Asian operations in 2007.
RBS’ retail and commercial banking businesses in India currently has 1.1 million customer relationships, served by at least 1,800 staff through 31 branches. The employees will be transferred to HSBC after the deal is closed, said RBS in a press statement.
“In connection with seeking the required regulatory approvals, HSBC will apply to the Reserve Bank of India (RBI) for branch licences required to support the acquired businesses,” said HSBC.
HSBC in India has an asset base of Rs94,632 crore. It has 7,000 employees on its payroll, spread over 50 branches. If it is able to acquire the RBS branches, it will end up with 81 branches, the second highest network for a foreign bank in India, after Standard Chartered Bank Plc, which has 94 branches.
In June 2009, 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.
“The main focus of our strategy is on emerging markets and this acquisition is our third transaction in one of the world’s largest and fastest growing developing markets in the last two years,” HSBC chief executive officer Michael Geoghegan said in the statement.
Naina Lal Kidwai, HSBC group general manager and country head in India, said: “This transaction is an important addition to our existing network and testament to our ambition to expand our footprint in India.”
Madan Menon, country head (global banking and markets) at RBS NV India, said, “Post the sale of its retail and SME businesses, RBS will continue as a leading global wholesale and investment, transaction services and private bank in Asia-Pacific with a significant presence in 11 markets, including core markets such as India and China.”
HSBC had entered the bidding race for select Asian assets of RBS in October 2009, after talks between Standard Chartered Bank and RBS broke down over differences on the valuation of assets.
This is the second acquisition made by HSBC in India. In September 2008 it had acquired IL&FS Investsmart Securities Ltd, now HSBC InvestDirect Securities (India) Ltd, a retail brokerage business with more than 130,000 customers and outlets across 52 cities.
RBS has been in the process of 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. In February 2009, RBS declared that it would move its India retail and commercial banking operations into non-core businesses, making it clear that these assets were up for sale.
RBS shares gained 2.2% to 40.34 pence (Rs28.32) apiece at 2.45pm in London, while those of HSBC rose 1.12% to 605.8 pence.
Mint had first reported about the deal in December 2009. Subsequently, in March it reported that HSBC and RBS had started making joint calls to clients.
Bloomberg contributed to this story.