Hongkong and Shanghai Banking Corporation (HSBC) has decided to scrap its plan to buy the retail and commercial banking businesses of Royal Bank of Scotland in India, after negotiating for almost two-and-a-half years.
Royal Bank of Scotland (RBS) said in a statement its agreement with HSBC expired on November 30, and the banks will no longer proceed with the transaction. “RBS will continue to wind down the retail and commercial businesses in India in an orderly way and is exploring options for this. There will be no immediate change for customers ...,” it added.
HSBC said in a statement that the deal did not materialise as the long-stop date (November 30) was reached “without all conditions required to be closed”. It added that it was committed to pursuing growth in India, which remained a key strategic market for the group.
| PORTFOLIO 2011-12 data | ||
| HSBC | RBS | |
| Deposits (Rs cr) | 61,423.30 | 13,039.50 |
| Advances (Rs cr) | 35,512.30 | 12,534.50 |
| Wages as % to total expenses | 19.30 | 18.60 |
| CRAR (%) | 16.04 | 12.46 |
| Net NPA ratio | 0.62 | 0.74 |
| Branches | 50 | 31 |
| CRAR: Capital Adequacy Ratio NPA: Non-performing assets Compiled by BS Research Bureau Source: RBI | ||
The deal was called off as the banks failed to reach an agreement on certain parameters, the lenders said, without detailing further.
This is the second time RBS has failed to close a deal involving sale of its India assets. Earlier this year, the foreign lender announced plans to sell cash equities, mergers and acquisitions, and equity capital market businesses to Malaysian bank CIMB. CIMB later withdrew from the deal because of an “unexpected legal issue”.
The transaction with HSBC, announced on July 2, 2010, ran into regulatory hurdles, too, almost from the moment it was announced. Initially, it was decided that the deal would be completed in the first half of 2011.
HSBC agreed to a consideration that had a premium of up to $90 million over the tangible net asset value of the business being acquired minus an adjustment equal to 90 per cent of any credit losses incurred on the unsecured lending portfolio in the two years subsequent to deal completion. The retail and commercial banking assets of RBS in India was estimated at $1.8 billion at the end of March 2010.
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The Reserve Bank of India (RBI), however, directed the banks to re-work the deal. The banking regulator was reportedly of the view that RBS cannot sell its India branches to HSBC as part of the transaction.
According to the revised deal structure, RBS was to surrender its licences to RBI. Sources said RBI had permitted this. But even that has failed to close to deal now.