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HSBC to buy RBS' India banking unit

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Will pay premium of up to $95 million for RBS’ retail, commercial businesses in the country.

The UK-headquartered Hongkong and Shanghai Banking Corporation (HSBC) announced today it had agreed to acquire The Royal Bank of Scotland (RBS) Group Plc’s retail and commercial banking businesses in India for a premium of up to $95 million (Rs 446.50 crore, at today’s rates) over the net asset value. The acquisition, which is subject to regulatory approvals, is expected to be completed in the first half of 2011, the bank said in a statement.

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.

Speaking in New Delhi, Group Chief Executive said: “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.”

The issue of branches
HSBC was advised on the transaction by HSBC Global Banking and Markets. “In connection with seeking the required regulatory approvals, HSBC will apply to the Reserve Bank of India (RBI) for the branch licences required to support the acquired businesses,” the bank said in a statement.

A lack of clarity over the fate of branches had been a stumbling block in the sale of RBS’ retail and commercial banking units. The lender had been scouting for buyers for its retail and small and medium enterprise (SME) divisions in India, China and Malaysia ever since it put the units on the block in April 2009. Till October last year, was the front-runner for the businesses, but the talks fell through due to disagreements on valuations and a lack of clarity on the fate of branch licences.

Since foreign banks in India operate as branches of their overseas parents, it was not clear whether would deem the sale of RBS’ retail and businesses as a bank sale that would entail a branch licence transfer, or a portfolio sale.

In a November 2009 interview, Standard Chartered Regional Chief Executive for South Asia, Neeraj Swaroop, had told Business Standard that his bank would not be interested in acquiring another lender unless the branches were part of the agreement.

However, according to a senior HSBC executive who declined to be identified, the bank expected to receive a substantial number, if not all, of RBS’ branch licences from RBI. “We are clearly not doing this acquisition for the assets. We are doing it for the deposits and the branches,” he added.

GBM, GBS not for sale
RBS’ retail and commercial banking operations in India comprise businesses acquired from ABN Amro Bank in 2007. RBS, which is more than 80 per cent-owned by the UK government, has decided to drastically reduce the scale of its operations. As a part of its recast, the bank has divided its global businesses into a core group – which the bank plans to retain – and the for-sale non-core division.

In India, the global banking and markets (GBM) and global transaction services (GBS) divisions are part of the core group, while consumer banking and commercial banking businesses are part of the non-core group.

The GBM division is headed by Madan Menon, while Meera Sanyal is country executive for RBS.

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