Global banks led by Citigroup, HSBC, Bank of America Merrill Lynch and Barclays are slashing jobs in their Indian operations at the fastest pace since the 2008 credit crisis amid dwindling deal flows and parent companies’ shrinking balance sheets to boost capital.
Citigroup on Tuesday cut 100 jobs and HSBC will soon show the door to scores of its staff here as part of its 30,000 reductions internationally. French bank BNP Paribas eliminated more than a dozen in recent months and Royal Bank of Scotland has put its equities and mergers advisory business on sale that may lead to layoffs.
Job cuts by the investment banking divisions of global banks due to slowdown in deal flows and retrenchments in corporate and retail businesses due to strong domestic competition could top 1,000, aggregation of publicly available data by human resources consultant Ma Foi and ET shows.
The job cuts implemented in the past 12 months and those in the process of execution bring back the debate raised by Reserve Bank of India Governor Duvvuri Subbarao on international banks’ commitment to emerging economies during times of stress at home.
“In the markets you don’t have commitment, you will shirk each time there is a problem,” said Jaspal Bindra, Asia chief executive of Standard Chartered Bank, which plans to add to its 2,000 hires last year. “The name you can’t pronounce is much easy to sack than the person sitting next to you. It boils down to the factor of commitment,” he said.
These job cuts are in contrast to what state-run banks are doing. Lenders led by Punjab National Bank and Union Bank of India are estimated to be hiring more than 45,000 during the fiscal, but paying just about a fraction of what international banks pay.
“All businesses across the world are undergoing a strategic review and India will not be left out of this review,” HSBC said in a statement without specifying the headcount reduction.
“The effort is about increasing efficiencies and enhancing our effectiveness as an organisation. A variety of roles may be impacted,” it said.
All banks referred to the cuts as part of global strategy.
MOST STAY OUT OF RETAIL BANKING
Need for additional scarce capital to meet new rules and shrinking profitability from trading and other investment banking activities in the West are forcing banks to cut thousands of jobs. European banks that are also battling the sovereign credit crisis are cutting exposure to Asia, where they are estimated to have loaned more than $2 trillion.
The European Banking Authority has directed banks to raise e115 billion by June. Although the job cuts in India are a fraction of the more than 200,000 job losses announced by financial firms in 2011, they reinforce the regulator’s keenness to ringfence domestic operations from risky global ones.
“Foreign banks in emerging economies vigourously built business in good times, but were equally vigourous to retrench during the crisis,” Subbarao had said. “The question is, are foreign banks going to be fair weather friends?”
The Indian regulator has proposed rules that may force all major foreign banks to convert into a subsidiary instead of operating as branches of their parent company. Barring a few big ones such as Citigroup, Standard Chartered and HSBC, most of the international banks rely upon mergers advisory and fund-raisings for their revenues from India, instead of serving retail customers.
So, the fall in cross-border mergers and acquisitions and poor stock markets have also led to layoffs. “The mergers and acquisitions activity has dropped this year which is one of the reasons why banks are downsizing their teams,” said K Pandiarajan at Ma Foi Management Consultants Ltd. “This is a temporary phenomenon which has direct link to investment climate which is bleak.”
Equity offerings in 2011 fell 68% to Rs 37,100 crore, data from Bloomberg shows. Mergers and acquisitions tumbled 44% to $37.4 billion, Thomson Reuters data shows. Although it is the necessity that forces companies to shrink, it could have adverse consequences for their businesses and clients.
These banks may be at a disadvantage to capitalise on business when the tide turns. Clients’ trust could have waned by the time they rebuild their business.