Mumbai: Hongkong and Shanghai Banking Corp. Ltd’s (HSBC) plan to buy the Indian retail and commercial banking businesses of Royal Bank of Scotland Group Plc (RBS) has fallen through. The proposed deal has “expired” because it could not be completed within the 30 November deadline, HSBC said in a filing to the London Stock Exchange on Friday.
“The agreement for the acquisition by the Hongkong and Shanghai Banking Corp. Ltd (“HSBC Asia Pacific”) of The Royal Bank of Scotland Group Plc’s Indian retail and commercial banking businesses has expired as the long-stop date of 30 November 2012 has been reached without all conditions required to close the transaction being satisfied,” the statement said.
An RBS statement said the proposed sale had “lapsed” and the bank “will not be proceeding” with the deal.
“RBS will continue to wind down the retail and commercial business in India in an orderly way and is exploring options for this. It will also reduce the loan portfolios in line with the stated group policy of running down non-core assets,” it added.
The exact reason why the deal could not be completed before the deadline expired is not known.
The deal had been hanging in the balance for more than two years since it was announced in July 2010. The Reserve Bank of India (RBI), which initially declined to transfer RBS’s 31 branch licences to HSBC, reasoning that the proposed transaction was a portfolio sale and not a complete buy-out, later changed its position even though it never officially announced the go-ahead. Neither RBS nor HSBC had announced receiving the regulator’s approval for the deal.
RBS has shrunk both deposits and advances in India in the last few years as it prepared to sell a part of its business to HSBC.
From Rs.18,911 crore in 2007-08, the bank’s deposit base fell to Rs.13,039 crore in 2011-12, according to the RBI website. Advances fell from Rs.20,381 crore to Rs.12,534 crore during the same period.
RBS got the India branches after the global acquisition of Dutch bank ABN Amro NV in 2007 by a three-bank consortium that it was a part of, along with Fortis Banque NV and Banco Santader SA. It was the largest acquisition in the global financial sector at that time.
The acquisition, however, proved costly for the British bank, which needed a bailout by the British government after the global financial crisis broke out in September 2008. RBS has since been winding down its international operations.
The India retail and commercial business was subsequently put up for sale. RBS still classifies that business as “non-core” and it constitutes less than 0.5% of the group’s non-core assets, the bank said in the statement.
According to RBS, the volume of its non-core business has dropped to £65.1 billion (around Rs.5.7 trillion) in the third quarter of 2012, from £258 billion in 2009.
“There will be no immediate change for customers who will continue to be served as they are today and will be notified of any changes impacting them in a timely way and to minimise disruption,” the RBS statement said.
“There is no impact on RBS’s markets, international banking and private banking businesses in India, which will continue to offer market-leading products to corporate, financial institutions and wealth management clients,” it added.
It will continue to focus on debt financing, risk management, transaction services and wealth management businesses in Hong Kong, India and Singapore.
Currently, UK Financial Investments Ltd, an arm of the UK government, holds an 82% stake in the bank.
It is not clear whether the bank will close down all or some of its branches in India. A bank spokesperson said there were no more details to share on the collapse of the deal.
HSBC is facing trouble globally as a decline in profit forced the bank to announce that it will cut 30,000 jobs by the end of 2013. Some employees have also been retrenched in India, particularly in the bank’s non-banking subsidiary HSBC InvestDirect Securities (India) Ltd.
Earlier this year, the bank was fined by US federal authorities over accusations of money laundering. The fine is likely to exceed $1.5 billion and could lead to criminal charges.
The bank will set aside $800 million to cover a potential fine for breaches in anti-money-laundering controls in Mexico and other violations on top of $700 million that it had set aside in July.
Robin Roy, associate director, financial services, PricewaterhouseCoopers India, said the cancellation of the deal could lead to a rethink on similar deals in the future.
“People who were on the sidelines will have to look at the mode of entry and vehicle of entry while envisaging such deals because of the regulatory view,” he said.