CASE STUDY HSBC's Restructuring in India Period: 1999-2004 Organization: HSBC India Pub Date: Countries: India Industry: Banking Abstract: The case discusses the operations of HSBC Group in India and the measures taken by HSBC India in recent times to achieve a faster growth. It discusses in detail the reorganization program launched by Booker, the CEO of HSBC India to transform the conservative institution into an aggressive, performance-oriented one.

The case discusses in detail various internal reorganization measures including the introduction of new work principles, downsizing, organizational reshuffling and greater focus on potential growth areas. Background The Hong Kong and Shanghai Banking Corporation Limited (HSBC) entered India as early as 1959. Despite being one of the oldest and well-established foreign banks, HSBC had been lagging behind local private sector banks and other foreign banks in India in terms of business network and growth. HSBC's competitors and industry experts regarded it as a conservative bank that lacked competitive spirit. Commenting on HSBC, the head of direct sales of one of its rival banks said, "HSBC isn't seen as being as aggressive as its rivals in the market. It has extremely good relationships with its branch customers and serves them very well, but it is just not seen as being aggressive in the rest of the market." HSBC's complacency was reflected in the bank's financial performance. Local private sector banks like ICICI and HDFC were far ahead of HSBC in all business segments. When benchmarked against foreign banks, HSBC fared badly. HSBC's net profits fell by over 25 per cent for two consecutive years in the fiscal 2000-01 and 2001-02, while rival banks like Citibank posted a rise of 37 per cent in profits for the same period. On November 2002, Niall S K Booker (Booker) was appointed Group Manager and Chief Executive Officer (CEO) of the HSBC Group in India. Booker soon realized that HSBC India followed a conventional approach to doing business and retained its old bureaucratic structure and culture. He believed that the much criticized laidback work culture was the reason for the lacklustre financial performance of the bank. Booker decided to transform the bank's work culture so that HSBC could shed its bureaucratic and conservative image and gear up to face new challenges. He wanted HSBC India to be proactive and aggressive like its competitors. To achieve this, Booker concentrated on giving the bank a new direction by launching a major restructuring program. HSBC is a leading global player in the banking and financial services industry. It is the third largest bank in the world in terms of market capitalization it provided a comprehensive range of financial services, namely, personal financial services, commercial banking, corporate investment banking, private banking and other related businesses. HSBC was established in 1865 to finance the growing trade between Europe, India and China. Scotland-born Thomas Sutherland (Sutherland), who worked for the Peninsular and Oriental Steam Navigation Company, established the bank. He found that there was considerable demand for local banking facilities in Hong Kong and on the Chinese coast. Sutherland established a bank in Hong Kong in March 1865, and another in Shanghai after a month. The banks' headquarters were at Hong Kong. Soon, the bank opened branches around the world. The emphasis continued to be on strengthening the presence in China and the rest of the Asia-Pacific region. By the end of the century, HSBC emerged as the foremost financial institution in Asia. World War I (1914-1919), however, brought disruption and dislocation for many businesses. The 1920s saw a revival with HSBC opening more branches. During World War II (1941-1945), the bank was forced to close many branches and its head office was temporarily shifted to London. After the war, the headquarters was shifted back to Hong Kong. The post-war political and economic changes in the world compelled the bank to analyze and reorient its strategy for continued business growth. The acquisition of the Mercantile Bank and the British Bank of the Middle East (BBME) in 1959 laid the foundation for the present day HSBC Group HSBC in India HSBC's origins in India could be traced back to October 1853, when the Mercantile Bank of India, London and China was established in Mumbai. Starting with an authorized capital of Rs 5 mn, the Mercantile Bank soon opened offices in London, Chennai (India), Colombo, Kandy, Kolkata (India), Singapore, Hong Kong, Canton and Shanghai. In the next 10 decades, the Mercantile Bank steadily expanded its geographical network and service offerings, keeping pace with the evolving banking and financial needs of customers. The Mercantile Bank was acquired by the HSBC Group in 1959. The head office of Mercantile Bank at the Flora Fountain building in Mumbai continued to be the head office of the HSBC Group in India. In the 1970s, HSBC decided to expand by acquisition and formation of its own subsidiaries. HSBC introduced India's first automated teller machine (ATM) in 1987. In 2001, HSBC opened the first bank branch in Pune (Western India) that remained open all 365 days a year. The Restructuring On his appointment, Booker's approach was to focus on fine-tuning and executing existing strategies, rather than experimenting with new plans. He intended to take it slow and steady without radical changes. He said that "the people issue" was very important to him. Therefore, the key components of the restructuring programmers included introducing new work principles, downsizing, organizational reshuffling and focus on new growth areas. New Work Principles HSBC's work culture was considered most bureaucratic among all foreign banks in India. Reportedly, the top management had a laid-back attitude towards work. An insider said, There is a bunch of people at the top who aren't very competent and who all play golf together. It is basically an old boys'club. The Benefits The impact of the restructuring programme was reflected by the improved financial performance of HSBC (Refer Exhibit IV and V for the financial highlights of HSBC). For the financial year 2003-04, the assets per employee and net profit increased by 30 per cent; operating profit by 31 per cent and cost-to-income ratio came down from 47 to 43 per cent compared to the fiscal 2002-03. Personal financial services accounted for 36 per cent of total advances, against 31 per cent in the previous fiscal. HSBC's retail assets doubled during this period from around a fourth to a third of its total assets. HSBC expected that the retail business would grow by 40 per cent in the fiscal 2004-05. Home loans business grew by 100 per cent; and the branches' contribution comprised 30 per cent Looking Ahead Notwithstanding the benefits reaped from the restructuring, HSBC was still a small player in several financial services businesses including asset management, home loans, stock broking, credit cards and retail banking in India. For instance, HSBC Asset Management (India) Private Ltd. launched in December 2002, had total assets under management amounting to Rs 540 bn by June 2004. Still, it was only the 10th largest asset management company (AMC) in India. The slow growth of advances was another problem for HSBC. In the financial year 2003-04, HSBC's loan disbursals grew by just 4.67 per cent over the financial year 2003 while for the same period, its competitors like Standard Chartered and Citibank loan disbursals grew by 44 per cent and 11 per cent respectively. Moreover, in spite of improved financial performance, the changes introduced by Booker did not go well among top managers. Question to review:-

ANSWERS FOR CASE STUDY

Q.1 The need for old and well-established organizations to change their outlook and the way they operate along with the changing times so as to compete with smaller, nimble-footed competitors successfully the company needs to transform the work culture so the company could shed its bureaucratic and conservative image and gear up to face new challenges. The company should be proactive and aggressive like its competitors. To achieve this, Management should concentrated on giving the organisation a new direction by launching a major restructuring program.

Q.2Examine the restructuring program implemented by HSBC India to revive its financial performance

On his appointment, Booker's approach was to focus on fine-tuning and executing existing strategies, rather than experimenting with new plans. He intended to take it slow and steady without radical changes. He said that "the people issue" was very important to him. Therefore, the key components of the restructuring programmers included introducing new work principles, downsizing, organizational reshuffling and focus on new growth areas. In the 1970s, HSBC decided to expand by acquisition and formation of its own subsidiaries. HSBC introduced India's first automated teller machine (ATM) in 1987. In 2001, HSBC opened the first bank branch in Pune (Western India) that remained open all 365 days a year.

Notwithstanding the benefits reaped from the restructuring, HSBC was still a small player in several financial services businesses including asset management, home loans, stock broking, credit cards and retail banking in India. The impact of the restructuring programme was reflected by the improved financial performance of HSBCFor the financial year 2003-04, the assets per employee and net profit increased by 30 per cent; operating profit by 31 per cent and cost-to-income ratio came down from 47 to 43 per cent compared to the fiscal 2002-03. Personal financial services accounted for 36 per cent of total advances, against 31 per cent in the previous fiscal.

Q.3Critically analyze the strategies adopted by Niall SK Booker to make HSBC India an aggressive, performance-oriented organization HSBC's work culture was considered most bureaucratic among all foreign banks in India. Reportedly, the top management had a laid-back attitude towards work. An insider said, There is a bunch of people at the top who aren't very competent and who all play golf together. It is basically an old boys'club.

Q.4-Chart a growth strategy for HSBC India in the near future For the financial year 2003-04, the assets per employee and net profit increased by 30 per cent; operating profit by 31 per cent and cost-to-income ratio came down from 47 to 43 per cent compared to the fiscal 2002-03. Personal financial services accounted for 36 per cent of total advances, against 31 per cent in the previous fiscal. Notwithstanding the benefits reaped from the restructuring, HSBC was still a small player in several financial services businesses including asset management, home loans, stock broking, credit cards and retail banking in India. For instance, HSBC Asset Management (India) Private Ltd. launched in December 2002, had total assets under management amounting to Rs 540 bn by June 2004. Still, it was only the 10th largest asset management company (AMC) in India. The slow growth of advances was another problem for HSBC. In the financial year 2003-04, HSBC's loan disbursals grew by just 4.67 per cent over the financial year 2003 while for the same period, its competitors like Standard Chartered and Citibank loan disbursals grew by 44 per cent and 11 per cent respectively. Moreover, in spite of improved financial performance, the changes introduced by Booker did not go well among top managers

Chart a growth strategy for HSBC India in the near future will be as shown below:2002-0347%2003-04 43%2004-05