HSBC shuts brokerage arm in India; around 300 lose jobs

MUMBAI: Hong Kong and Shanghai Banking Corporation ( HSBC) said on Thursday it will discontinue its retail broking and depository business in India as profit margins are shrinking with trades shifting to derivative options from cash market, and retail investors preferring gold, real estate and bank deposits to stocks.

The bank had purchased the business from infrastructure lender ILFS in 2008 for a little over Rs 1,000 crore. "The exit will impact around 300 employees," a person aware of the developments said. HSBC Direct Securities, which operated the business, will continue with its institutional brokerage and depository business, a bank spokesperson said. "Impacted employees will be offered a fair and equitable severance pay in line with HSBC policy, and career transition services will be extended through a professional agency," the HSBC spokesperson said in a release.

The bank said it will notify existing clients of the date of discontinuation of its retail brokering and depository services, but will continue to provide them with retail brokering services until then.

"HSBC employs 30,000 executives in India of which 1,000 were recruited last year," the person quoted earlier said. The bank will now continue to invest in other businesses it operates, including retail and commercial and investment banking, wealth management, asset management, capital markets and insurance services capital markets.
The shift in trading to low-yield equity derivatives has put pressure on retail broking margins. Options trading now constitutes nearly 75% of equity derivatives. The commission pool the brokers earned had declined by 40% to around Rs 6,000 crore in the fiscal year ended 2013 from Rs 15,000 crore in FY08, while the operational cost has risen due to investments to upgrade technology, and in legal and compliance needs to adhere to regulatory changes. There are around 15,000 brokers and over 76,000 Sebi-registered sub-brokers in India. "Over the past couple of years, the retail broking business has become tough," said Motilal Oswal, CMD, Motilal Oswal Financial Services, a broker. "Long-term commitment is required for retail business as it is a cyclical, low-yielding and high-volume business." "At the peak of the business, most top brokers were adding around 15,000 clients a month but now even 3,000 new additions are tough," he said.

"HSBC could have decided to discontinue as it did not find any suitor for its retail brokerage," says an executive from a domestic brokerage.

But some large banks and Indian companies have purchased brokerages in the past to expand their retail network. Standard Chartered Bank acquired UTI Securities, Aditya Birla Financial services bought Chennai-based Apollo Sindhoori and Edelweiss Securities acquired Anagram Securities, while foreign brokerages that have scaled up institutional broking in India include Jefferies, Barclays, RBS and Espirito Santo.