Will UBS shut down Credit Suisse's India unit?

Call it a coincidence or the quirk of fate, there is a one-word 'crisis' that aptly describes UBS AG Group's likely re-entry into the Indian banking industry.

At the height of the 2008 global financial crisis, when hundreds of global banks went belly up, the Swiss-based UBS AG received good news from the Reserve Bank of India (RBI) about their license to operate in the Indian banking sector. The license to operate as a branch model was pending for some time due to clarifications sought by the RBI.

But after operating in India with a single branch for close to a decade, UBS decided to exit the Indian banking industry. It surrendered its license to RBI in January 2016. UBS's decision to leave the Indian banking industry was part of its global plan to focus on what it does best.

The global banking giant had issues after the global financial crisis of 2008, much like other global banks. The bank began a significant reorganisation initiative in 2011 with the goal of focusing its attention away from investment banking and into other businesses like private banking, foreign exchange, advisory services, and capital-light assets.

The exit from India had nothing to do with any India-specific issues. In fact, the US-based Citibank recently exited 13 markets, including India, to focus on its core strengths and preserve capital for scaling up businesses globally. Private sector Axis Bank has recently acquired Citi's consumer business in India.

The second tryst with India for UBS Group is taking place when the global financial sector is experiencing turmoil due to higher interest rates and global recession. UBS's decision to buy out the beleaguered Credit Suisse for USD $3.25 billion marks its re-entry into the Indian banking industry.

Credit Suisse India, which has a banking license, operates in wealth management, investment banking, and brokerage services and has a relatively small presence in the country. Its deposit base as of March 2022 was Rs 2,800 crore, with loans and advances of Rs 947 crore, a total income of Rs 804 crore, and a net profit of Rs 303 crore. The business has been on the decline for the last three years.

The question now on everyone's mind is whether UBS will choose to surrender the Credit Suisse license in India. As of March 2022, the Indian unit has a strong capital adequacy ratio of 60.02 per cent, which is well above the levels seen in Indian banks.

This is because the Indian unit is mostly focused on wealth management and other service-based offerings. This indicates that there is no immediate need to raise additional capital. However, if UBS does decide to exit, it will most likely be due to the bank's global strategy of shifting away from fixed-income businesses to asset-light businesses.

"The global bank has to apply to the RBI for a change of control at Credit Suisse India. This process will take some time as the RBI will re-assess the background of the new promoter," says a consultant familiar with the merger process.

A potential option for UBS is to merge Credit Suisse's banking business with UBS Securities. UBS has been operating a securities broking and advisory business in India since the 90s.

There are synergies between the Credit Suisse India unit and UBS Securities. This unit was established in the 1990s during India's reform process and has since become a key player in advising foreign investors who are looking to invest in the Indian capital market. "This will also require the blessings of the NCLT and other securities regulator," says the consultant.

UBS Business Solutions AG, which is a subsidiary of UBS Group AG, has back-office operations in India.

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