In a change to the bank’s strategy for India, HSBC announced in early December that it will buy a 20% stake in UTI Bank, a small private Indian bank, for around $90m. HSBC will pay private equity investors Commonwealth Development Corporation (CDC) Capital Partners and South Asia Regional Fund about $66m for a 14.7% stake in UTI Bank, and has a call option to buy another 5.3% in the next three months. HSBC intends to exercise that option, and will then, under India’s regulatory rules, make a general offer for another 20% to UTI Bank’s shareholders sometime in March.
The purchase, announced while HSBC CEO designate Michael Smith was visiting India, surprised many because HSBC, which has a 150-year-old franchise in the country, has not been particularly aggressive in the past. While it has acquired assets and customers from other departing foreign banks here, it did not appear keen to buy a minority stake in a local bank. That now seems set to change. Soon after the announcement, Mr Smith said HSBC was open to picking up more minority stakes, perhaps in insurance and pension joint ventures, while waiting for local regulations to evolve, indicating that the group is stepping up its strategic plans for India. HSBC brought in $150m of capital early in 2003 to meet new regulatory rules and the UTI Bank purchase takes the total capital HSBC has invested in India to $590m.
