It is anticipated that the Indian businesses of both banks will be consolidated as a result of UBS’s proposed acquisition of Credit Suisse. While Credit Suisse has a single office operating in Mumbai with a banking licence, it competes with UBS and Credit Suisse in the investment banking and wealth management sectors in India.
In June 2013, UBS, which had received a banking licence from the RBI in 2009, ended its banking activities there and gave the RBI its licence back. The choice to leave the banking industry in India may be related to a more widespread global trend brought on by Basel III rules’ tougher capital requirements. Numerous foreign banks have been pushed by these regulations to scale back operations in countries like India and their investments in Indian businesses.
One of the first companies to consider a total withdrawal from the Indian banking industry was UBS. The Securities and Exchange Board of India has granted a separate investment banking licence to UBS Securities, which has continued to operate. In an alleged money laundering case involving controversial businessman Hasan Ali Khan, UBS was under investigation in India.
As UBS began aggressively lending to significant Indian corporates in late 2010, that is when it made the decision to expand its commercial banking operations. In 2011 and 2012, the lender aggressively entered the high-yield lending market. However, the failure of the firms to provide sufficient profits led to the decision to close down both of them. At the end of March 2012, UBS had outstanding advances totaling $6.2 billion, per information from the RBI’s Profile on Banks report.
As part of a global move to leave the fixed-income market, UBS chose to terminate its fixed-income business in India in October 2012.
The Reserve Bank of India granted Credit Suisse permission to open a bank branch in Mumbai in January 2013. According to research firm Jefferies, it has assets of over Rs 20,000 crore (12th among international banks), participates in the derivatives market, and funded 60% of assets with borrowings, 96% of which are for a period of up to two months.
“Yet, with a 0.1% percentage of assets, it is still minuscule for the banking industry. We keep an eye out for liquidity problems and any effects on the evaluation of the counter-party risk (particularly in derivatives), and the deposit market may shift towards larger, higher-caliber banks, according to Jefferies.
With a 0.1% market share in sector assets and a 1.5% share of foreign banks’ assets, Credit Suisse is present as a branch. According to Jefferies, Credit Suisse only has one branch in India but has a total asset base of more than Rs 20,000 crore, ranking it as the 12th largest foreign bank by 1.5% of all foreign banks’ assets and 0.1% of all assets in the sector. G-Secs (short term) account for 70% of assets, and there are no NPLs.
In India, borrowings account for 73% of all obligations, and 96% of borrowings have terms no longer than two months. A smaller portion of Credit Suisse’s liabilities, at Rs 2,800 crore, or 20% of all liabilities, come from its subsidiaries.
The National Stock Exchange (NSE) and the Bombay Stock Exchange both recognise UBS Securities India Pvt Ltd as a stockbroker that is registered with the Securities and Exchange Board of India (SEBI) (BSE). UBS offers corporate, institutional, and wealth management clients in India broad access to global capital markets, innovative solutions, and guidance. One of UBS’s technology hubs, India has a sizable staff.
With the exception of insurance and pension funding, Credit Suisse Securities (India) Pvt Ltd engages in businesses related to financial intermediation. The company was founded in December 1996. In India, it already provides asset management, investment banking, and wealth management to high-net-worth individuals, corporations, and institutions.
As the worldwide merger process takes shape in the upcoming months, it is likely that these two companies will join. Neelkanth Mishra, co-head of Credit Suisse Securities’ Asia-Pacific strategy, has made the decision to leave his position and take over the research department at Axis Bank.
Although there are up to 45 foreign banks in India, they are there in relatively lesser numbers, contributing only 6% of the country’s total assets, 4% of its loans, and 5% of its deposits. They are more active on the 50% of the derivative markets (forex and interest rates). Only a handful of them are present as wholly-owned subsidiaries, with the majority of them existing as branches of the main bank.
Yet, according to Jefferies, they make comparable annual report disclosures to Indian banks and keep capital and liquidity. According to assets, the top five foreign banks in India are J.P. Morgan Chase, the biggest bank in the United States, Standard Chartered, Citibank (which has since sold its consumer business to Axis), and HSBC.
“Given the relevance of Credit Suisse to India’s banking sector, we see softer adjustments in assessment of counterparty risks, especially in the derivative market. We expect RBI to keep close watch on liquidity issues, counterparty exposures and intervene as necessary. This may also lead to institutional deposits moving more towards larger, quality banks,” Jefferies said.
