HSBC evasive on going wholly-owned subsidiary way

Earlier this month, Reserve Bank had released the final guidelines for foreign banks to become wholly-owned subsidiaries

HSBC India has sounded evasive about converting itself into a locally incorporated entity, saying that changing the holding structure will not have a bearing on its broader strategy of doing business in the country.

 

Overseas lenders anyway do not wish to become a State Bank of India having a presence across the country with a large network, a top official from HSBC has said.

 

"Whether you operate as branches or whether you operate as a fully-owned subsidiary, makes no difference to our strategy here. Our India strategy remains the same," HSBC India Chief Executive Stuart Milne said on the sidelines of the annual banking jamboree here over the weekend.

 

"I don't think most foreign banks operating here actually want to be like State Bank of India. They have a different strategy. How do you execute that strategy doesn't make a difference whether you are a branch or a subsidiary," Milne said.

 

"If we wish to expand our reach, then clearly we need to put our branches in the more under-banked areas and that is part of the cost of having a branch network here," he said.

 

"It is perfectly appropriate for the regulator to ask us to do that and I have got no problem with it," Milne explained.

 

Earlier this month, the Reserve Bank had released the final guidelines for foreign banks to become wholly-owned subsidiaries (WOSs).

 

The guidelines offer them "near national treatment" and also the freedom to acquire local private banks and open branches without prior RBI permission, provided those foreign banks turn themselves into wholly-owned subsidiaries or get them locally incorporated in case of lack of adequate disclosures.

 

However, RBI governor Raghuram Rajan gave these foreign banks, which entered the country before August 2010, the option of continuing to operate as branches. 

 

The draft guidelines issued by Rajan's predecessor Duvuuri Subbarao had said those overseas banks with over 30 branches would have to get themselves WOSs, under which there are only four out of 97 foreign banks that need to change their structure.

 

These four banks are the largest and the oldest -- StanChart with 100 branches, HSBC with 49 branches, Citi with under 40 branches and RBS with 31 branches. Barring Citi, which is of American origin, all the other three are of British origin.

 

But Rajan asserted that conversion into a WOS mode will result in those banks getting "near national" treatment. Milne said being a large foreign bank with close to 49 branches, HSBC already complies with a host of regulations including priority sector lending and having presence in under-banked areas.

 

"As a large foreign bank, we have always met our obligations on priority sector lending. The subsidiarisation has no impact at all on PSL for large foreign banks. If you have more than 20 branches, as we do, there is no difference. That is not a barrier to incorporating as a wholly-owned subsidiary," he said.

 

To a question of the final RBI guidelines issued on November 6, Milne said HSBC will "consider them carefully" and then "make a judgement" on the way forward. "We welcome the clarity that the guidelines provide," he said.

 

"We have been here for the past 160 years, we intend to continue to do business here and grow our business here," he added.