Hong Kong and Shanghai Banking Corporation (HSBC) expects to close the transaction involving the acquisition of Royal Bank of Scotland (RBS)’s retail and commercial banking businesses in India in three to four months.
The bank is currently reviewing the terms and conditions of the deal, which were scheduled to be put in place by September 30. The transaction was not closed, as it did not secure the Reserve Bank of India’s (RBI) approval.
According to sources, the RBI was not comfortable with RBS selling its branches to HSBC as part of the deal. The banks are currently re-working the deal structure. HSBC has 50 branches in India and is the second-largest foreign bank in the country, in terms of branch network. RBS has 31 branches in the country.
Speaking to Business Standard, Naina Lal Kidwai, country head of HSBC in India and director, HSBC Asia-Pacific, said, "All of that (terms and conditions, including valuations) are currently under review. We expect it to be completed in the next three to four months."
The deal, announced in July 2010, was part of RBS' plan to retreat from some of its businesses in foreign markets. HSBC agreed to pay a premium of up to $95 million over the tangible net asset value of the businesses, once the transaction was completed. The actual price, however, would depend on the quality of assets.
HSBC on Monday said its pre-tax profit from India business rose 19.7 per cent to $813 million in 2011, compared to $679 million a year earlier. The growth was aided by a dip in losses in retail and wealth management operations and growth in earnings in the commercial banking business.
India remained the sixth-most profitable market for the bank after Hong Kong, China, United Kingdom, Brazil, and Canada. Last year, HSBC Holdings Plc's profit before tax rose 15 per cent to $21.9 billion.
Kidwai said reduction in the bank's unsecured retail loan portfolio and growth in its wealth management business helped it cut losses in this business division. The loss in the bank's retail banking and wealth management business narrowed to $14 million in 2011 from $83 million a year earlier.
She added, "We have already started selectively growing our unsecured book. The run-down of the unsecured retail book has led to lower provisions. Our wealth management business has grown significantly. We are among the top distributors the in insurance and mutual funds space."
Pre-tax gains from the bank's commercial banking business surged 71.8 per cent year-on-year to $122 million in 2011. The global banking and markets business had reported a profit before tax of $539 million last year, compared with $508 million in 2010.
The foreign lender's loan portfolio in India, however, narrowed 10.4 per cent to $6.01 billion in 2011, as the bank offered fewer personal loans, residential mortgages and funds for commercial and international trade. Kidwai said, "While retail lending has decreased, our loans to corporates have increased. The slowdown in loans for global trade reflects market conditions. It is not because of any lack of appetite on our part."
At the end of 2011, HSBC had 32,000 employees in India. The bank expects its net headcount to rise this year.