HSBC to finally get 23 Royal Bank of Scotland branches

The Reserve Bank of India's approval for staggered takeover, branch allocation to be outside annual allotment exercise

After two years of negotiations, the Reserve Bank of India is set to allow HSBC to acquire 23 of the 31 branches in India of Royal Bank of Scotland.

The HSBC-RBS deal, announced in July 2010, was part of RBS’ strategy to retreat from some businesses outside its home market.

Though RBI had cleared HSBC’s acquisition, it had not allowed the RBS branches to be a part of the deal. RBI had asked RBS to surrender the branch licences while selling its business. As a result, the deal, supposed to be completed by September 2011, got delayed.

GREEN SIGNAL

• HSBC’s branch count in India will expand to 73 from 50 at present
   
• HSBC will continue its discussion with RBI on location of new branches to avoid overlaps
   
• 15 Indian cities have both HSBC, RBS branches
   
• HSBC to pay premium over the net asset value of the acquired businesses
   
• RBS to retain 8 of its 31 branches in India
   
• Revised priority sector lending targets for foreign banks will not be applicable to RBS

Recent M&A deals in foreign banking landscape in India

• 2011: Standard Chartered Bank and Kotak Mahindra Bank acquired Barclays' credit card portfolio
   
• 2011: IndusInd Bank acquired Deutsche Bank's credit card portfolio
   
• 2007: Standard Chartered Bank acquired banking unit of American Express Banking Corporation
   
• 2000: Standard Chartered Bank acquired Grindlays’ business from ANZ Grindlays Bank

 

HSBC had insisted the transaction would not be viable if it did not get a majority of the branches. RBI has now agreed that HSBC can take over the 23 branches but in a staggered manner — that is, seven to eight each year. Sources also indicated this branch allocation to HSBC would be kept out of the annual branch allocation exercise to foreign banks.

The RBI decision will eventually take HSBC’s branch count in India to 73, helping it consolidate as the second largest foreign bank in the country, in terms of network.

RBS will retain eight branches for its debt financing, risk management, transaction services and wealth management businesses. Earlier this year, RBS said it would sell its cash equities, mergers and acquisitions, and equity capital markets businesses in India to Malaysian lender CIMB. Later, CIMB said it would not buy RBS’ India assets because of an “unexpected legal issue”.

“In February 2012, HSBC re-negotiated an agreement with RBS. The bank will pay a premium over the net asset value of the acquired businesses,” said a source familiar with the development.

He added HSBC would continue its discussion with RBI on the location of these branches. “If there are any overlaps in terms of branch location, there will be further discussion to sort it out,” the source said. There are 15 cities in India where HSBC and RBS have branches. Apart from the metros and top-tier cities, both have branches in Jalandhar, Lucknow, Nashik and Surat.

HSBC and RBS did not want to comment for this story. “We continue to engage positively with the regulator,” said a spokesperson with HSBC in India. Went an RBS statement: “We continue to work closely with HSBC and the regulators to complete the deal in a manner that satisfies regulatory requirements and is in the best interests of our clients and employees.”