Fresh blow for RBS sale strategy as Indian HSBC deal falls through

RBS: disposing of Indian business, of which Sachin Tendulkar was an ambassador
RBS: disposing of Indian business, of which Sachin Tendulkar was an ambassador
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Royal Bank of Scotland was dealt a new blow today as a deal to transfer its Indian arm to HSBC collapsed.

RBS said it would now wind down the retail and commercial banking business in India instead.

HSBC blamed the deal falling through on an inability to complete all the details by the deadline for the deal two years after it was first announced.

A separate proposed £1.65 billion sale of 316 RBS branches in the UK to Santander collapsed recently, also after two years of talks. Those branches are now back on the market, their sale

having been ordered by the European Commission in return for the bank’s taxpayer rescue.

The Indian divestment, worth

$95 million (£59m), was announced in July 2010 as part of RBS’s plans to reduce its non-core assets and would have seen 400,000 customers and 31 branches transfer to HSBC.

RBS, 82 per cent state-owned following its £45 billion bailout in 2008, said the Indian retail and commercial operations are profitable, had revenues of £42m in the nine months to end-September and total assets of £190m.

But the business had shrunk significantly in the past two years, with customers well down on the 1.1 million it had in March 2010.

In addition, India’s regulator has strict rules on branch ownership by foreign banks and that had caused complications with the sale, local papers had reported.

RBS said: “Consistent with RBS’s strategic objective to reduce or exit its non-core assets and businesses, it will begin to wind down its retail and commercial banking business in India, whilst meeting all customer obligations.”

The Indian arm accounts for 0.5 per cent of the group’s remaining non-core assets which are estimated to be worth £65bn. They have come down from £258bn at the start of the restructuring and divestment programme in 2009.

One analyst commented: “RBS will be disappointed the Indian sale has not gone through, particularly after such a lengthy period of negotiation.

“But in terms of the group’s size, it is not important, and doesn’t throw the wider divestment programme at the bank off track.”

Analysts also said the latest failed sale was further evidence of the difficulty of completing transactions in the sector amid rapidly changing strategies, stricter regulation and complex IT issues.

Among non-core sales under chief executive Stephen Hester’s shake-up of the bank have been RBS Aviation, RBS Asset Management, a stake in Bank of China, the Sempra meals, oil and

energy business, retail operations in Taiwan, Hong Kong and Singapore, and the Linea Directa insurance business in Spain.

RBS’s core businesses, what will

become the “new” bank once the turnaround is complete, saw operating

profits rise two-thirds in the third

quarter to £1.6bn.

It floated its insurance arm, Direct Line Group, on the stock market in

October, raising £911m from the sale of a 34.7 per cent stake, while it also exited from the government’s Asset Protection Scheme.

Nationwide and Virgin Money have signalled possible interest in the branches RBS failed to offload to Santander.