Why HSBC is closing its India private banking business

Hongkong and Shanghai Banking Corporation (HSBC), whose chairperson Naina Lal Kidwai announced her retirement a month ago, is now again hogging the limelight. Today, the bank announced the closure of its private banking business in India.

Unlike mass banking, private banking is the dedicated banking services for high net worth individuals (HNIs). So what could be the reasons for shutting shop when India is the only bright spot in the world. We take a look.

• The Environment Of Stress: The Indian economy is  yet to see a big pick up despite being in the bright spot as India is more consumption-oriented than other emerging markets such as China or Brazil. The  world economy is still not out of the woods. China is wobbling and  so many emerging markets. This  will have a direct impact on the Indian economy. So a specialized dedicated team for private banking when the business is not  expected to see any major jump in the next 3-5 years doesn't make sense.
• Cut-Throat Competition: The private banking space is hugely competitive. Few decades ago, foreign banks had an edge in the private banking space because of quality service, global investment tools and an untapped market. Today, the likes of ICICI Bank and Axis  Bank  have stormed the market with a similar product offerings. That stress could be seen in many banks like RBS recently exited  the private banking business. Similarly, there are reports of StanChart and Morgan Stanley moving out of  private banking business.
• Falling Returns: Look at the investment class from commodities, gold, equity, MFs to real estate. They are  already instances of HNIs losing big money because of bets going wrong. There is no hope of a major recovery in many of the asset classes. Take for instance, India despite being on bright spot is now witnessing any major moves in its stock market. In fact, the stock market has plunged from a high 30,000 in March this year to 26,000 levels.
• HNIs Under Stress: Most of the HNIs  are promoters of SMEs , self employed , traders , big corporate and are under stress  because of their companies. The stress is not going to go away as revenues  and the profitability is not showing any big improvement. Many of the promoters have also pledged their shares, taken personal loans  etc. In such an environment of stress, the private banking  business isn't  looking encouraging for  any banks. Some like RBS  and HSBC  are taking a tough call, whereas others are holding on to it.
• Simplification: HSBC  hasn't closed the banking business. These private banking clients can always  deal through the retail banking and wealth management  where the entire suit of product is available for them. For the bank, it's a major savings on costs at a time when business isn't showing encouraging signs.