RBS-HSBC deal likely to miss September 30 deadline

Royal Bank of Scotland’s (RBS) efforts to sell its retail and commercial banking businesses in India to Hongkong and Shanghai Banking Corporation (HSBC) is likely to miss its deadline of September 30, as the Reserve Bank of India (RBI) is yet to approve the deal.

Sources said both the banks were reworking on the structure of the deal and, hence, it was unlikely to be closed by the end of this month.

“We are working closely with HSBC and the regulators to complete the deal,” an RBS spokesperson in India said in an e-mailed response, without detailing further. The HSBC spokesperson was not available for comment.

The deal, announced in July 2010, was part of RBS’ plan to retreat from some of its businesses in overseas markets. HSBC had said it would pay a premium of up to $95 million over the tangible net asset value of the businesses when the deal was completed. The actual price will depend on the quality of assets.

According to sources, the banking regulator is not comfortable with the deal, as it involves part-selling of RBS’ businesses to HSBC. “The main issue is with the branch network. RBI is not convinced with the proposal of RBS selling its branches to HSBC and still continuing with wholesale banking operations in the country,” a source familiar with the development said.

HSBC currently has 50 branches in India, the second-largest among foreign banks in the country. RBS has 31 branches.

RBS has so far maintained that India would continue to remain a “core market”, even as it was exiting retail and commercial banking businesses. The principal businesses for RBS in India will be global banking and markets, global trade and transaction services and private banking.

“It is a complex transaction, hence, it is taking time. RBI has raised some points with regard to the number of branches and priority sector requirements, and these have to be addressed before the deal is closed,” said another banker.

In an earlier interview with Business Standard, Naina Lal Kidwai, country head for HSBC in India, said the nature of the deal was unprecedented.

“RBI is looking at it cautiously, because anything it does would set precedence for the future. Frankly, we always thought it (securing approval from the RBI) would take time,” she said.