Failing to generate adequate returns, multinational banking and financial services company HSBC on Thursday said it is shutting down its retail broking and depository services business in India, five years after acquiring the business from IL&FS Investsmart for roughly R1,300 crore.
Operating under HSBC InvestDirect Securities (India) or HSIL, the company will cease opening new retail broking accounts with immediate effect, but will continue to provide broking and depository services to existing clients until it notifies the date of closure. As of September, HSBC InvestDirect had about 1.9 lakh retail clients.
According to sources, roughly 300 employees will be impacted by the move, to whom the company will offer a fair compensation package as well as career counselling services. “This move represents further progress in the implementation of HSBC’s strategy announced in May 2011... HSBC reviewed all options available before deciding on the exit,” the bank said.
HSBC had acquired IL&FS Investsmart in September 2008 and the business was re-branded as HSBC InvestDirect (India). The company offered services ranging from retail broking, investment advisory, and securities’ financing via its NBFC to individuals and corporates.
Experts said HSIL had been struggling since it began operations in September 2008 as the market environment turned negative due to the global financial crisis. During the last five years, retail participation and cash volumes, the bread and butter for equity brokers, has been on a steady decline.
“Logically, the brokerage should have been able to do extremely well considering that it could have tapped into the bank’s (HSBC) customer base. But that doesn’t seem to have happened,” said a senior broker, on condition of anonymity. According to him, stricter compliance norms may have added to the broker’s operational delays which, in turn, could have turned off clients.
Another broker said HSBC’s decision may also be linked to stricter capital requirements that have been brought in as part of Basel III norms that forced a number of foreign banks to curtail their operations in markets like India and also pare down investments in Indian companies.