HSBC had to change its plans of taking a larger equity stake in UTI Bank, one of the new generation private banks in the country.
"It is a major concern when rules change. When a country is trying to attract foreign direct investment, it is necessary for an incumbent government to stick to the promises of the previous government," said Michael R P Smith, president and chief executive officer, the Hongkong and Shanghai Banking Corporation Ltd in Hong Kong recently.
Smith said there is a need for further deregulation of the banking sector and further access to the market.
"Sometimes I wonder if the government understands the role of international capital. Foreign direct investment is responsible for the boom in China although it is very regulated," he pointed out.
In December 2003, HSBC had stated its intent to pick up a 20.08 per cent stake in UTI Bank. However, the Reserve Bank of India approved of a lower investment of 14.58 per cent. This was even as the previous NDA government, which lost power in May 2004, had passed a note permitting FDI in private banks up to 74 per cent.
The recent RBI guidelines for ownership in private banks released in February 2005 hints at the banking giant to trim its holding in UTI Bank to 5 per cent.
Currently, HSBC's stake in UTI Bank stands at 12.40 per cent following the private bank having gone for a global depository issue of shares.
HSBC has not further reduced its holding in UTI Bank as yet. "We will wait and see what the government departments want us to do. We will comply with whatever regulations they impose," Smith said.
HSBC though open to the idea of converting its branch into a subsidiary, Smith said, "it is more effective to run as a branch. Being a subsidiary always adds costs and bureaucracy."
On whether HSBC would be interested in taking over any weak private bank which the banking regulator has permitted, Smith said, "It depends on what it would be and the potential it offers. If it is only 'hospital cases', we are not a welfare state."
The RBI had in its guidelines mentioned that foreign banks could take over 'weak' private sector banks, but has yet to identify them.
