Wednesday, March 5, 2008

RBI gives approval to StanChart to buy American Express

The Reserve Bank of India’s (RBI) gave approval to Standard Chartered to acquire American Express Bank (AEB) from American Express Company (AXP) in a $823 million cash deal.

RBI gave the approval only when it permitted AEB to transfer its credit card business to American Express Banking Corporation (AEBC). As per the sources, “The RBI only gives one banking license. It is the bank’s prerogative to choose its line of business”.

AEB wanted to keep hold on its credit card and travel business in India by transferring it to a non-banking finance company (NBFC). But this did not find favor with the RBI as the regulator is not comfortable with an NBFC issuing credit cards without having partnering with a bank. Amex then requested for a restricted banking license the banking regulator to carry out credit card and travel-related businesses.

“The merger will add seven branches to our (Standard Chartered) network, in metropolitan areas such as Mumbai, Delhi, Bangalore and Pune. This will boost our private banking and financial institutions business. We will add close to 700 Amex employees to our existing staff. The integration is expected to take around 24 months,’’ said Neeraj Swaroop, regional chief executive, India and South Asia, Standard Chartered Bank.

The branch acquisition is being considered important as the RBI is permitting all foreign banks put together to set up an average 12 to 14 branches annually. Standard Chartered has around 81 branches in India, which is the largest network among foreign banks operating in the country.

Standard Chartered will also being entering into an option contract with American Express Company to buy American Express International Deposit Company 18 months from now at the cost prevailing then. American Express International Deposit Company is headquartered in the Cayman Islands and issues short-term, fixed-rate certificates of deposit to the AEB customers.

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