Global bank HSBC has said the Reserve Bank of India's proposal restricting foreign banks' investment in local banks may prompt it to shelve its acquisition plans and focus on organic growth only.
"As investors, we look for security and stability of our investments," said David Eldon, chairman, HSBC, Asia-Pacific. This is the first reaction from HSBC after the central bank floated a discussion paper on capping foreign banks' stakes in Indian private banks at 5 per cent.
The move will affect HSBC's plan to pick up a 14.62 per cent stake in UTI Bank. HSBC had earlier wanted to pick up a 20 per cent stake in the bank but RBI allowed it to hold only 14.62 per cent.
"Do we see any restriction in the proposal? The answer is yes. This is unusual. In my 40 years (in banking), I can't recall another such instance," Eldon said, referring to the RBI's proposal.
Eldon told Business Standard if the RBI made a regulatory change once, "We as investors would be apprehensive of further changes in the future."
The proposal has sent negative signals to prospective global investors and they might be forced to look for investment opportunities elsewhere.
"We prefer to invest in open markets," he said, but added that emphasised HSBC would abide by local rules.
The RBI proposal will not result in the foreign bank -- with its 150-year-old history -- running away from the country. "Our strategic plans have always been based on organic growth, and we are selective in our acquisitions," said Eldon.
Niall Booker, group general manager and chief executive officer for HSBC India, said local banks might not find enough capital to fund the rapid growth of industry.
"With rising interest rates and flat yield curves, public sector banks' ability to generate adequate profit will be impacted. The shortfall in capital can be made good by foreign investment," Booker said.
Eldon is particularly concerned about the Indian regulator's move, when countries like China are opening up their financial sectors. "The trend is more towards liberalisation. We have seen this in Mexico, China, Singapore," he said.
When asked whether HSBC would look at the subsidiary route to expand in the country, Eldon said while the bank had not foreclosed the option, the subsidiary route would limit the size of the balance sheet.
"As the second-largest bank worldwide, our branch operations in India have the full strength of the global balance sheet," said Eldon. He said HSBC had set up subsidiaries in only two countries -- Saudi Arabia and Malaysia -- as "we always abide with local market rules and regulations".
UTI stakeEquity investor Actis on Wednesday sold off its remaining 4.9 per cent holding in UTI Bank for Rs 160 crore. The foreign entity sold off 12 million shares at Rs 130 per share in three block deals on the BSE.