The Royal Bank of Scotland (RBS) seems to be running out of options to divest its retail banking division in India as its proposed deal with Hongkong and Shanghai Banking Corporation (HSBC) remains stuck in regulatory hurdles.
The deal, which was announced in July 2010, involved the sale of RBS’ retail branch network to HSBC for a premium of Rs 444 crore and was expected to be wrapped up by August 31, 2011 after necessary clearances from the Reserve Bank of India. The deadline was extended till October 31 but has not been extended further.
Last Friday, an internal email sent to the bank’s employees jointly by RBS’ country executive Meera Sanyal and John Shelly, CEO, retail and commercial markets for Asian region, said that the bank was looking at a contingency plan should the deal not go through.
“What it means for us is that we will also have to get into a discussion with HSBC on the possibility of extending the longstop date or looking at alternative method of divestment to HSBC or look at a possible contingency plan,” the mail read.
The mail did not detail the alternative plans.
However, an RBS source told Hindustan Times that the management has already finaliased a contingency plan without diving details. Analysts speculate that this could involve layoffs, or even closure of the business.
“RBI has posed some uncomfortable questions to both banks, regarding the gains from the deal and their HR plans, wherever there might be duplication of function,” said the source.
Sources in RBI said the central bank has asked both HSBC and RBS about the need for the deal, and is looking at aspects such as transferability of branch licences.
Both Sanyal and HSBC India country head Naina Lal Kidwai did not respond to text messages. However, a spokesperson for RBS said that the bank continues “to be in discussions with HSBC to complete the sale in a manner that satisfies regulatory requirements and is in the best interests of our customers and employees.” She, however, refused to confirm or deny the finalization of a contingency plan by the bank.
“It can look for any other player to sell its assets but no other foreign bank will step in for the deal now due to the delay in regulatory approval,” said Kajal Gandhi, banking analyst, ICICI Securities.