HSBC Holdings Plc (HBC) on Friday announced that it will acquire the retail and commercial banking businesses of Royal Bank of Scotland Group Plc (RBS) in India. RBS has an Indian portfolio with a gross asset value of $1.8 billion as of March 31, 2010.
Under the terms of the agreement, HSBC will pay a premium of approximately $95 million over the tangible net asset value of the business. However, 90% of any credit losses sustained by RBS’ unsecured lending portfolio in the two years following the completion of the deal will be deducted from the premium value.
The deal will likely be wrapped up by the first half of 2011, subject to regulatory approvals. HSBC will also apply to Reserve Bank of India (RBI) for the branch licenses that are required to support the acquired business.
RBS’ presence in India is due to its acquisition of ABN Amro Bank NV’s Asian operations in 2007. At present, RBS has 31 branches throughout India, employing around 1,800 people with 1.1 million customers. Following the completion of the deal, all the employees of RBS will be transferred to HSBC.
HSBC has 7,000 employees spread across 50 branches. After the integration with RBS units, the company will have 81 branches all over India, the second highest for a foreign bank in India. With 94 branches, U.K.-based Standard Chartered Bank Plc holds the top position.
The acquisition of RBS is the second acquisition done by HSBC in the country. In September 2008, the company had acquired IL&FS Investsmart Securities Ltd, a retail brokerage business, presently operating as HSBC InvestDirect Securities (India) Ltd. The company had also formed a joint venture with Canara Bank and Oriental Bank of Commerce in June 2008 to start a life insurance company called Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited.
RBS had had its retail and small and medium enterprise (SME) divisions in India, China and Malaysia up for sale since April 2009. Standard Chartered Bank had been the front-runner for the Indian units of RBS until October 2009. However, differences on valuation and lack of transparency regarding branch licenses made the discussions futile.
Besides local lenders/banks, among the foreign lenders in India, the two main competitors of HSBC are Standard Chartered and Citigroup Inc. (C). Of late, Citigroup has been enhancing its presence in India by increasing the number of branches and recently, Standard Chartered raised $530 million of capital through Indian Depository Receipts (IDR).
According to the International Monetary Fund (IMF), India is expected to become the third largest economy in the world by 2012, based on purchasing power. Hence, with a large population and huge market, India is attracting many international companies who are keen on entering or expanding their businesses in the Indian market.
With the combination of its leading position in the emerging market and its robust financials, HSBC will be able to take advantage of remarkable growth potential in the Asia-Pacific region. This deal will augment its footprint in the region and shoot up its revenue base in the days ahead, if the RBS integration is completed without much difficulty.
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