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  • Foreign Banks in India: The HSBC RBS Private Banking Sale 0 comments
    Sep 20, 2011 3:56 AM | about stocks: GS, ING, RBS, HSBC

    RBS had committed to HSBC towards the sale of all its 31 branches and 100 retail / wealth staff to HSBC. It is yet questionable if HSBC could have absorbed all 1800 staff which continues to operate as ABN AMRO in the country since License transfers are a throny issue that from the point of view of the regulator should not have risen as the occasion to sell in each case is in question. 

    Since the deal signing in 2009/2010 when ANZ lost to the HSBC bid in India and Malaysia, there has been speculation peculiar to the Indian regulator's national requirements. None of the speculated objections have yet been resolved, additionally with RBS and ABN planning to come back to the country RBI has taken a harder stance on this apparent tomfoolery with buying and selling branches and networks . Among the first nonsensical results of immediate interest to RBI would have been the multiplicity of licences for the acquiring bank and the lack of branch approvals for HSBC once it as acquiring bank had surrendered the second licence per law with RBS. Even before the assumed non-event (buyers/sellers) though RBI has now found itself troubled by the fact that RBS wll continue to live in the country in isolation as also ANZ ( in its TV appearance by CEO Mike Smith on Bankers' Trust - B-UTV) plans to remain only in institutional business in India. ANZ, ICBC have one branch each in the new avatar, the most planned by RBS in its new role as a exclusively wholesal player in the country. 

    Media reports make it clear that RBI has made a unitary objection on the sale - that of the 32% priority lending commitment which precludes any option without retail branches and in factas the new charter sugggests, new branches in Tier 5 and 6 town. 

    Priority sector requirements are not new and all the 32 license holders in the country manage the same lending requirement without their own branches in the rural hinterland. Obviously those wholesale approaches are not the objective of the Priority sector lending regulation. 

    Global evidence of parochial regulation

    India's own ICICI Bank is curtailing international deposits in most geographies as local regulators want such deposits to be ringfenced for local disbursals. This instance is unlikely to be an isolated one and a ringfenced national structure is already mandated fo rmost banks but expensive to execute. The Indian regulator per force is under pressure to clarify  and safeguard India;'s interests in terms of adequate capital for local operations which has been found wanting by banks as they feel strained by restrictive voting and limitation on branch licenses among others, as aloso their inability to compete with Indian majors in retail footprint

    The Original Sale

    RBS sold the ABN AMRO business it acquired in the country while keeping the Global Banking and Markets Divisions along with the Global Transaction Services it acquired from ABN AMRO headed by Meera Sanyal. 

    BS of July 03, 2010

    RBS’ retail and commercial banking businesses in India house portfolios with a gross asset value of $1.8 billion

    (nearly Rs 8,400 crore) and have 1.1 million customer relationships, served by over 1,800 staff through

    31 branches currently.

    According to the terms of the agreement, 90 per cent of any credit losses incurred on RBS’ unsecured lending portfolio in the two years subsequent to the deal’s completion will be deducted from the $95-million premium to be paid over the tangible net asset value of the businesses.

     

    This was later deemed to be a portfolio sale and RBS was not allowed to transfer licenses as the banks were not incorporated in India and were only branches owned by foreign parents The Stanchart offer for the same sale was considerably lower as it expected the regulatory run ins to be discounted. ANZ that had earlier sold off its business to Stanchart and ABN have planned a return to India and again received licenses while being welcomed by their core consituency of customers in retail, do not expect to go beyond Transaction services and Capital Markets/Fixed Income / Syndicate lending

     

     

    Other thorny issues still remaining to be sorted out thus the picture that emerges is the following :

     

    1. Each branch still requires explicit RBI approval and none of the 32 players have been forthcoming in unitarily capitalising the India subsidiary for its leverage commitments as currently we all go by Internal Risk management approaches that count on a single Asia Pacific Balance sheet to sell loans to India corporates esp as the competitive advantae for us in Foreign banks is in arranging cheaper ECB loans and FC denominated swaps

    2. Licenses being conditional to Priority sector lending apart , there needs to be dialogue between banks and the local regulator with the Indian operation commiting that it has the authority and the reach to complete all its India commitments and RBI observations. For example Swaps create unseemly leverage and banks do not resolve the same as per tehir own internal risk management where approvakls are already received?

    3. Banks may feel stretched by the current requiremetns to commit 12 new breanches in a year as are automatically approved with the 32 foreign banks surviving on 320 branches for their nearly double digit share in Indian banking assets a\nd having avoided the changeover to WOS formats suggested in 2005 with INR 3 bln capital minimum . That this capital would have to satisfy basel and RBI norms on CAR locally queers the pitch for effective pricing for these banks and also in terms of global business sructures where entire regions operate on economics of large volumes that they will have to indeopendently build in India. 

    4. The banks do remain commited to growing in India, HSBC for example and till recently Citi heavily recruiting in the country in retail and wholesale. Banks remain the preferred stock recriter of MBAs led by Foreign banks in India

    5. A roadmap for ringfencing national operations has not been committed by BCBS ( Basel Committee) and banks have already calendarised ramp up of Capital per new standards till as late as 2018 and 2019 in view of the adverse strains on their global operations

    6. Foreign banks have not been able to get RBI  's specific approvals for any request for voting rights beyond the current limitation of 15% though there is no such limitation on purchase of individual stakes by the banks. HSBC had earlier planned to stay with Axis Bank as partner but had to make do with the solitary ILFS Investmart purchase

    7. New private banks are allowed FDI of 49% for 5 years and changes on voting limitations may be made in the Banking Regulation act as per demands. Many in pvt sector insurance also await allowing of increase of JV partners' equity expected to be approved to 49% since the last 6 ears but still hanging fire based on reform to holding limits acrossindustry per se

    8. The impression of RBI as an archaic regulator somehow persists in the global bank offices as of last count in terms of capital commitments to India operations being recounted as Comfort letters provided proved to be of no later consequence for the banks

    9. Even with local subsidiaries, RBI feels that Foreign banks commitment to the country is volatile with over 16% contraction in credit in 2009 and 8% in 2008 after reaching a so called "dominant" position in market share in 2007 

    RBI paper on Foreign Banks (2005) suggested a WOS structure be mandatory now for 0.25% of national banking assets or mor ein share (IIFL - RBI  paper )

     

     

     

     

     

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Themes: Banking Stocks: GS, ING, RBS, HSBC
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