UBS & Credit Suisse: What will happen to the Swiss banks’ Indian operations?

UBS was one of the first to look at a complete exit from the banking business in India. UBS Securities, which has a separate investment banking licence issued by the Securities and Exchange Board of India, has remained operational. UBS had faced a probe in India in an alleged money laundering case involving Hasan Ali Khan, a controversial businessman.

UBS first decided to ramp up its commercial banking business in late 2010 when it started to actively lend to large Indian corporates. The lender also moved aggressively into the high-yield loan business over 2011 and 2012. The businesses, however, failed to generate adequate returns and this prompted the decision to exit both businesses. According to data provided by the RBI’s Profile on Banks report, UBS had outstanding advances of $6.2 billion at the end of March 2012.

In October 2012, UBS decided to shut down its fixed-income business in India as part of a global decision to exit the fixed-income space.

And what about Credit Suisse and India?

In January 2013, Credit Suisse received a license from the Reserve Bank of India to establish a bank branch in Mumbai. It has over Rs 20,000 crore in assets (12th among foreign banks), a presence in the derivatives market and funded 60% of assets from borrowings, of which 96% is up to two months, research firm Jefferies said.

“Still, it is small for the banking sector with 0.1% share of assets. We watch out for liquidity issues and any rub-off on counter-party risk assessment (especially in derivatives) and the deposit market may move towards larger, quality banks,” Jefferies said.

Credit Suisse is present as a branch and has a 1.5% share among foreign banks’ assets and 0.1% in sector assets. Jefferies said, “Credit Suisse has only one branch in India and has a total asset base of over Rs 20,000 crore that is 12th largest among foreign banks with 1.5% share in foreign banks’ assets and 0.1% in sector assets. 70% of assets are in G-Secs (short term) and have 0 NPLs.”

Borrowings in India form 73% of total liabilities and 96% of borrowings have a tenure of up to 2 months. The deposit base of Credit Suisse is smaller at Rs 2,800 crore, forming 20% of total liabilities and 70% are from subsidiaries.

Will they merge in India as well?

UBS Securities India Pvt Ltd is a Securities and Exchange Board of India (SEBI) registered stock broker and holds membership in the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). UBS provides corporate, institutional and wealth management clients with expert advice, innovative solutions, execution and comprehensive access to international capital markets in India. India is one of the technology hubs of UBS with a sizeable workforce.

Credit Suisse Securities (India) Pvt Ltd, incorporated in December 1996, is involved in activities auxiliary to financial intermediation, except insurance and pension funding. It already offers wealth management, investment banking and asset management in India, serving high-net-worth, corporate and institutional clients.

These two firms are likely to be integrated as the global merger process takes shape in the coming months. Neelkanth Mishra, Co-head of the Asia-Pacific strategy of Credit Suisse Securities, recently decided to step down from his role and move to head the research wing at Axis Bank.

The larger presence of foreign banks in India

As many as 45 foreign banks are present in India, but they have a relatively smaller presence in India with a 6% share in total assets, 4% in loans and 5% in deposits. They are more active in the derivative markets (forex and interest rates) where they have a 50% share. Most of them are present as branches of the parent bank with only a few present as wholly-owned subsidiaries.

Nevertheless, they retain capital, liquidity and make similar annual report disclosures as Indian banks, Jeffries said. The top five foreign banks in India by assets are HSBC, Citibank (it has now sold its consumer business to Axis), Standard Chartered, Deutsche Bank and J.P. Morgan Chase which is also the largest US bank.

“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.