RBS Sale of Indian Consumer Division to HSBC Collapses

Royal Bank of Scotland Group Plc, Britain’s biggest taxpayer-owned lender, said the sale of its Indian consumer and commercial-banking operations to HSBC Holdings Plc collapsed.

RBS will wind down the unit, the 81 percent taxpayer-owned bank said in a statement today. RBS announced the sale to London-based HSBC for an undisclosed sum in July 2010.

“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 Edinburgh-based firm said in the statement.

Bank of England Governor Mervyn King is pressuring U.K. banks to raise capital levels by selling assets to guard against loan losses. Banks are struggling to find buyers for assets: last month, Banco Santander SA walked away from buying 316 branches that RBS has to sell by 2014 to comply with a European Union state-aid ruling after being bailed out by U.K. taxpayers.

Chief Executive Officer Stephen Hester has cut assets by more than 800 billion pounds ($1.28 trillion), eliminated 36,000 jobs and scaled back RBS’s securities and Irish units since 2008.

RBS’s Indian unit has about 190 million pounds of assets, 31 branches and serves 400,000 customers, the bank said. It generated revenue of 42 million pounds in the nine months to the end of November. RBS expected to sell the unit at a premium of 60 million pounds over book value, according to Ian Gordon, a London-based analyst at Investec Plc.

‘Mutual Decision’

India’s central bank “has been tightening regulations for foreign banks operating here in an attempt to ring fence the domestic banking system from outside risks,” said Dolly Parmar, a Mumbai-based banking analyst at IFCI Financial Services Ltd. “The concerns raised by the central bank seem to have spoiled the deal.”

HSBC said in a separate statement that it remained committed to the Indian market and would expand there through its existing operations.

“HSBC and RBS took a mutual decision to discontinue this transaction as we had spent more than three years working on this deal but had not been able to conclude the transaction,” HSBC said in the statement.

RBS’s shares fell 1.3 percent to 295.2 pence in London, little more than half the average price the government paid when it provided the bank with a 45.5 billion-pound rescue during the financial crisis. The stock has climbed 46 percent this year. HSBC’s shares rose 1 percent to 637.7 pence.

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